I wanted DEM based routes myself a couple of weeks ago. I followed the tutorial at the link provided in the above post. I download the Countywide dem data and end up with a DEM of around 400 boards in a rectangular shape. After a little practice I can now generate a DEM and start placing track in 5 minutes.
There is a bug in Trainz, (I think), which causes spikes to be generated in the DEM map. I found a post here on the forums on how to fix that issue. Simply create a new one board route, rename the route layer to something else, then merge the DEM into it. Fixes it 99%.
The problem I have now is the tremendous amount of time, (work), and skill, (patience), it takes to grade the track over the various terrain elevations. I find it very difficult to get realistic looking track/grades in such conditions. I use bridges, terrain tools and track tools only to find it just doesn't quite look "right".
My point/suggestion is this..........get a DEM off the DLS from user "fishlipsatwork" and try laying track on that before undertaking a project involving a large time commitment. Some of his DEM's are absolutely HUGE in square miles of rugged mountains and rolling hills and the download is only 25 to 50 megabytes.
FWIW,
Randy