Really, any broad-scale landform design is best done in an external editor, in my opinion... Photoshop's my tool of choice, GIMP is free and excellent, or any other reasonably powerful editor that can use layers will do the job.
Start with a 1024x1024px square image (for a 512x512 mile map). Get your broad concept worked out, then sketch your map in the editor. Once you're happy with it and you're ready to go, make another layer - you'll use this to do the greyscale version. You have two broad options:
* You can draw the coastlines freehand (or modify the ones you did in the sketch), and generate the altitudes yourself (zero-brightness black for water, all the way up the scale to 255-brightness white for your max altitude). There are various tools in Photoshop/GIMP which can help with this. Or:
* Use nature. Find topographic elevation data (there's plenty of good free satellite data around) and import it, then manipulate the brightness range and move landforms around within your map area to suit your purpose. More fiddly, but nothing beats the real world for natural-looking landscapes.
Then import the 256-colour greyscale image into the TE, and you have a terrain with the altitudes complete. You can also output your (colour) sketch to use as the clipboard map for reference.
Then use MachNix's Tile Setter to generate your tiles, then hand tweak to taste.