I have to make some test with tesselated mesh terrain. I don't see actually any major disadvantages of using meshes over terrain, since the renderer puts them on the GPU anyway. Alpha blending is also no problem when you put the transparent parts into the foreground world.
It just needs to happen automatically, so some sort of class for the mesh terrain would be handy. And the engine needs to draw only to a certain range, so the seperate meshes will be drawn only within a certain distance. It's probably then even faster than the current terrain.
The mesh terrain class should be also able to read terrain heightmaps from Editor, and convert them into meshes. Then the terrain can be deleted from Editor and the corresponding meshes can be used instead. Converting back to Editor terrain can be done too, but I think people would prefer then to use Sculptris or Blender for further terrain editing once the base mesh has been done with Editor. With those sculpting editors you can then make any kinds of overhangs, caves, loops, and completely 3D terrain in all directions. Once you've tried that I think you'll never want the normal 2D terrain back.
I see also a huge improvement in loading times of big terrains, as only a small part of the infinite terrain needs to be loaded. The loading of the terrain will be handled by the meshterrain class too, so you only need to place the placeholders for them in Editor. You can also simulate in Editor the dynamic behaviour by using non-infinite viewranges for the terrain placeholders. Theoretically this would be sufficient for the class too, but there might be some problems with the 32-bit floating point accuracy, so to make sure it really works infinite, the positions for the meshes need to be 64-bit floating points, stored in a custom text file, which is then read into a STL map.