If you're going to convert this to a vertex object, you can add your own shader domains and make it easy on yourself. For something like this, I usually use a gray scale map made in Photoshop to drive the terrain height and then assign shading domains from the vertex modeler. Of course, you could do the whole map as a texture if you didn't want to use proceedural shaders. There is actually quite a few ways to do this type of thing...