I've never actually seen any difference using smooth normals checked or unchecked for objects in TG, other than the internal rock object, it works very well for that.
I'm not sure it even modifies an imported object at all. I might be wrong, though.
Importing a faceted object into Vue(for example) and using object smoothing actually really cleans up the surface creases, many times I've done this and been disappointed in the same object in Terragen and needed to subdivide the object again.
Checking 'smooth normals' in TG, I've not noticed any difference. I must test it again myself to re-confirm this, though...
Sorry, I'm of no help here, just thought I'd post my own findings.