Curious. Can we relate this issue to the elevation issue I have noticed on Mercury, through this thread ?
Is this for the high-res Mercury textures? I remember the description on those mentioning that they only work with the latest beta. That may have something to do with it.
www.orbiter-forum.com
You wrote that the issue is showing up with flattening disabled as well, so I don't think that it has something to do with the intended mechanism. However, according to the D3D9Client code, the hooking of the terrain engine in Orbiter's core is always done, even if the flattening is disabled. Of course the actual manipulation of the tile data is skipped with an early return in the function, so nothing should happen there. There could be some subtle bug within the trampoline, though, even if I can't imagine what that should be after reviewing the small amount of assembler code.
As a quick test, the version you use could be recompiled with the hooking explicitly deactivated by means of commenting the code and forcing the config flag to false. That should suffice to check the theory of flattening having something to do with it or not.
You could also try version 4.6, where terrain flattening was not incorporated. However, if it is not happening with that old version, it doesn't necessarily mean that flattening is the culprit, either. If it is still happening in that old version, it certainly means that flattening is NOT the culprit, though.