I have the same problem on my monitor. I can see the banding very distinctly, especially on the right of the picture, above the mountains. I have an iMac 15" 1440x900 32-bit. I often have banding in my tgd renders, I have tried many settings in Terragen, as well as recalibrating my monitor, changing the gamma, saving as .exr, etc. I would like to be able to fix the banding in Photoshop if it is a piece that is going on my website which will be viewed by visitors with varying quality monitors but I haven't figured that out yet (tried gaussian blur). BTW if I print out on my inkjet it appears as a beautiful continuous tone like a photograph, on both plain paper and photo quality paper.