Are you trying to fly and look straight down with a rotation? If so, you've just met gimble lock, which throws the camera off wildly as it tries to correct itself.
Terragen has a preset camera rotation order of Z,X,Y, which conforms pretty much to how you would use a camera on a tripod. The problem faced by all 3D apps is dealing with what happens when two rotation axis align during it's movement in an intuitive way. Have a look at these to videos to explain why....
http://vimeo.com/2649637http://vimeo.com/2824431The only way for the time being to get around this problem, is to link a Z,X,Y rotation order camera to a camera that doesn't go through gimble lock in your desired animation, in another 3D app, then bake the keyframes, and re-import into terragen.