I know that I can use software such as TrainzDEM to create terrains for new routes. Which software export terrains to 3DS or FBX files for use in other games?
E-on Software has a line of 3D programs that will read DEM files and allow you to edit the terrain before exporting in 3ds format. The cheapest path would be Vue Pioneer (free but with limits) with the Export module ($149). Pioneer will import DEM maps but won't export without the add-on module. I've been a Vue Complete user for years.