Hi Robert,
Thanks for your question.
As to why this happens, imagine the bottom left corner of your simple shape shader was at the origin, with the coordinates (0,0,0). This will be at the base of the displaced terrain feature. When the shader is displaced 100 meters upwards, the coordinates at the new top left corner is (0,100,0). In terms of texture space, there's "nothing" to work with on the X and Z axis, as those points basically overlay one another. It might be helpful to think of it as a uv map with two vertices on top of each other.
If you were to apply an Edge Profile, like bevel, and an Edge Width, like 25, that top coordinate might now be (25,100,25) and you now have "more" to work with in terms of the texture space, and Terragen has better results in subdividing that area for the displacement to occur.
We're thinking about how to best address this situation, and were hoping you could share a bit more about what you're trying to accomplish.