Well i do agree that you can use photoshop and get the heightmap done and then displace in lightwave. There is a detail tutorial that really helped me to learn more about terrian and such. He goes on to create a simple map and then edit it in something he calls Battlefield heighmap editor. Maybe this might help. But the formz thing looks cool already, maybe you should export and then import to lightwave to cel shade.
Here is the link :
http://www.lwg3d.com/forums/showthre...341#post160341
Hope this helps you,
Good Luck