I can send you the files if you want to look at them. It's just a test.
But I think that, whatever model Terragen uses for its internal computations, it may be added some sort of layer that presents, if required, the coordinates into some real world model. As Terragen is already capable of georeferencing, it means that it understands those models but at the end it converts everything into internal space. Which may be good for the majority of works Terragen has been built for, but makes working with real coordinates very uncomfortable.