This should work, as far as I can tell, if you put in the right location, picked up from the preview. But I never work with heightfields and prefer drawing my heightfields as a greyscale map (16-bit) to be imported as an image map.
What if you rightclick in preview, copy location and make a new (circular if you like) simple shape of say 20x20m and paste in those locations there, then use that mask to displace, just to see what happens...