It always smooths out an area 20m from the track, and floats the track, with a 0.02m gap above the terrain (to solve the track flicker problem in TRS2004) ... It is not adjustable, as it is coded into a ja file, and encrypted there.
I would be more than happy to share my techniques on grading tracks on a DEM with you, and by using Free Skype you could view my monitor, and learn my techniques, by seeing what I do.
Basically, I use MB Quad as a 4 track spacing guide, as it is a PRR 4m track spacing, and MB Quad is highly visible on the Trainz Minimap.
I use MB Quad for all the straight a ways, and on curves I use single track.
I lay all the MB Quad straights, all intersecting each other, then measure back both ways using the Trainz ruler, 300m from the intersections.
Then I insert spline points at that 300m mark ... and install single tracks, connecting the straight a ways.
As a MB Quad track can be dialed it to apply a 1.87% grade, it will raise the next single track height spline point ... but a single track typed in gradient will not raise a MB Quad track spline point.
There is a way to clone MB Quad track, and make it into a 4 track, single track, spline, by editing the config file, but I haven't perfected that use as of yet.
When I have all my straights, and curves connected, I manually lower all spline points to just a hair below the terrain, slightly sunken.
It take practice to iron out all the gradients so that they do not look like this: