Hi GOSD, I got that effect once. I think it is caused by a mismatch between the scenerysheet01.dds and the sceneryobjects.xml. Take a look through the stuff you have in your Assets folder, and see if you have both of those files. You may have ended up with the scenerysheet from one package, and the scenery objects xml from a different package.
You may also have more than one of either of those files, if you have subfolders under your Assets folder. What you need to have is a scenery sheet dds which matches the scenery objects xml file. Eliminate any double ups (back up each file before deleting!)
So you will need to scavenge a matched pair of these files from a working install, or default back to the original files which are found (I think) in one of the zip files in the Terrains folder.
HTH,
D