Unfortunately it does not seem like I am having such luck. Very stubborn this format is. I can bring it into Photoshop, then convert to Grayscale 16 bit, then save as RAW, then bring into Leveller, then export as .ter. But Leveller isn’t free, nor particularly cheap. I tried Firmament’s 16bit import, but it doesn’t seem to work. It’s possible that some playing with the .raw export options in Photoshop would fix this. But Firmament has always been a bit wonky in my experience.
What we really need is a utility solely created for the conversion of various terrain formats. 3DEM is kind of like that, I suppose. But it focuses mostly on DEM formats. We need something that can read in any 16+bit graphics format - PNG, TIFF, IMG, etc. and then output DEM, .ter, etc. Anyone up for the challenge? Leveller can do a lot of this, but again it’s not free.
More experimentation…
Ok, woohoo! SUCCESS! Here’s what you do: as above, take your .png into Photoshop. It should load no problem. Then go up to the Image menu, choose Mode, and set it to Grayscale, and confirm “Discard color information”. Then Save As in TIF format.
Then get the latest version of 3DEM from here. Load 3DEM and go to File, Load Terrain Model. Choose “GeoTIFF DEM (.tif)” and then browse and select your file. It will tell you “Incorrect Corner Coordinates” and then pop up a box with lots of data to enter manually. Leave the data format and offset alone (INT 16, no offset). In Matrix Dimensions, put the size of your image (257x257 in this case), make sure the data order is “Little Endian”. Put the coordinate system to X/Y.
Finally (for the import step), in the SW/NE corner coordinate area, just put in some standard value. I used 10000 for the NE corner, for both values. That seemed to work fine. Since it’s not really a DEM we’re importing, this part doesn’t matter except to tell it that there will be some distance between one corner and another, but this value is in meters (unless you specify otherwise), so if you actually want to specify something else at this point, you can. It will be the total size of your terrain in each dimension. You should be able to scale it later in Terragen to fit whatever you need anyway.
Last step in 3DEM, go to File and Save Terragen Terrain, and probably Entire Terrain. The terrain comes out inverted, and Terragen doesn’t have an Invert function. But WM does! So then bring it into WM, put down a File Input and an Invert device, and you should finally have your terrain. A bit of a long and convoluted process - certainly unnecessarily so. But it works! After that you’ll need to adjust it in Terragen with vertical scaling and point spacing, probably, but that shouldn’t be too hard. Hope that helps!