The only problem, I don't have the full scoop on what I need to do in order to get it to work. I already made a grayscale bitmap today, sure it's not too great. Saved it in 8 Bit bitmap. named it "grayscale.bmp". I'm not too sure if the grayscale is supposed to have a name less than 8 characters. However, I made a test terrain named "grays" and imported the bitmap. I told the TE to place the max elevation at 15,000. Keeping with the rules of the grayscale, I made sure that the highest elevations was white, and the lowest (water) was black. After I imported the bitmap it appears I went wrong somewhere along the process. The water is all spiked, nothing even looks similar to the grayscale. It's spiked all over the place, even in regions where there is only black (0 elevation).
So, apparently I knew less than I thought. I checked the image in paint under the "Save As" menu to determine if it was grayscale or 256 color. It said 256 color. Obviously that's the problem and I'm not too sure how to fix it in Adobe. The other thing I would like to have is tips on generating the actual grayscale. I just draw different color lines somewhat similar to a topo map. I draw the lowest in the darkest color I can identify, and the tallest elevation in white. Along the way up I draw some brighter lines so the elevation can transition. Then after I've drawn these lines I fill in the blank spots with the color of that elevation. Then I go to the outsides and use the blur tool to merge the colors together so that the terrain doesn't remain at one altitude and then just drop 4,000 FT.