Hey Mike, good to see you again.
To import heightfields, use the "Heightfield Load" operator. If your terrain doesn't show up correctly, seasrch around the forum for bug workarounds
Use an Image Map Shader or a default shader to apply images to the ground.
BigBen has done lots of work with masking - you can search for some of his threads if you want. I think that for erosion and stuff, he created a mask in WM, loaded it into TG2 via an image map shader, and then applied the mask to the terrain and stuff.