Hi Dave:
Glad to see you found a work-around.
Indeed, it seems that on
your installation,
Railroads may indent the terrain mesh even on a sloped terrain surface... rather curious behavior if that object type was actually intended to impart an "offset" (via the same mechanism as
ONLY used with roads in the
default FSX
Terrain.Cfg file ?

):
https://msdn.microsoft.com/en-us/library/cc526967.aspx#texture.n
NOTE: In the original
default FSX Terrain.Cfg file, "
flattenoffsetmeters" is
ONLY seen in association with "Stream" CVX vector textured polygon objects
//------------------------------------------------------------------------
// Vector Textures
//
// Name=human readable name
// Color=AARRGGBB (Microsoft internal use only)
// guid={xxxxxxxx-xxxx-xxxx-xxxx-xxxxxxxxxxxx} unique identifier of vector type
// LegacyId=FS9 vector identifier (optional, for backwards compatibility)
// Textures=name or names of textures to apply to this type of vector feature (see order notes below)
// Layout=TILED (for polygons)
// Layout=3_PLUS_1 or 3_PLUS_4 or 7_PLUS_4 (for lines)
// StripWidthMeters=width of line strip in meters
// Size=size of line pixels in meters (for FS9 backwards compatibility only)
//
FlattenMode=none or flat or offset or slope
//
FlattenOffsetMeters=used when
FlattenMode=offset
{remainder omitted from this example}
//------------------------------------------------------------------------
// Stream Lines - stream lines / unknown / perennial
[Texture.0]
Name=Stream_Lines_Perennial
Color=FF01A2FF
guid={2D3FC985-A72B-473D-B23B-D78E72E63B53}
LegacyId=1024
Textures=RiverSU.bmp
Layout=3_PLUS_1
StripWidthMeters=64
Size=4
FlattenMode=offset
FlattenOffsetMeters=-1
FlattenPriority=11000
LandClassRemapType=none
ExcludeAutogen=Yes
RenderToTexture=Yes
RenderPriority=51000
Water=No
// Stream Lines - stream lines / unknown / non-perennial
[Texture.1]
Name=Stream_Lines_Non_Perennial
Color=FF01A2FF
LegacyId=1025
Textures=RiverSU.bmp
Layout=3_PLUS_1
Size=4
FlattenMode=offset
FlattenOffsetMeters=-1
FlattenPriority=10000
LandClassRemapType=natural
ExcludeAutogen=Yes
RenderToTexture=Yes
RenderPriority=50000
Water=No
Are you using FTX Global or other 3rd party add-ons which edit- or install a substitute for- ...the default FSX Terrain.Cfg file ?
GaryGB