Cool, thanks for the solution. There is another issue I have which is related to this if anyone has any other ideas. I want to displace only the sheared terrain in all directions, not just vertical. So I put a Displacement Shader in between the Twist and Shear node. Now if the Displacement Shader (which is directly after the Twist and Shear node) is before the Compute Terrain node, then the displacement happens in a vertical direction. But if it happens after the Compute Terrain node then it displaces in all directions, which is what I want.
But then I run into the same problem of the Fake Stone Shader not pointing up on the displaced geometry. So I either need a way to displace in all directions beforefore the Compute Terrain node, or I need a way to 'reset' the direction of geometry in the Shaders section.
The two images below show what I mean, I changed no settings, just the position of the Displacement Shader. The first image shows good displacement, but bad stones, and the second image shows bad displacement and good stones. Any suggestions?