A: that is probably atmosphere affecting the terrain, as Bobby suggested. The question I'd have is what the scale of your scene is, how tall those mountains are. Most units of distance/scale are in Meters in Terragen. It's possible you just have some very tall and/or far away mountains, which means they're more affected by atmospheric haze. Or you may have increased the Haze, causing this effect.
B: I would guess that's not exactly "tearing" as Bobby put it, the color is wrong for one thing (when tearing occurs, you see the sky through the missing parts of the terrain). However, it does appear that you have quite strong, spiky displacement on the ground, so it's possible. In that case I'd suggest reducing the roughness and/or displacement amplitude of your shader(s) on the terrain. That being said I think it may be more likely to be reflection, are you using any on any of your shaders? If so just reduce or eliminate it.
D: Terragen Professional has a render elements/layers system that lets you separately output the sky and terrain, among other things. See documentation here:
http://planetside.co.uk/wiki/index.php?title=Render_Layers_and_Render_Elements- Oshyan