Pretty much. I'd have to play with it and see if any other special settings would be useful. The more of a spread in the colors, the better. Pure white and pure black and all shades in between. That gives a much more gradiated landscape.
I did something like this once for a project and it came out rather well. What I need to do here is alter things so that the texture is mapped in more than one (blended) layer. That shouldn't be any kind of big deal though, even if I just end up nesting textures.
Once I get it right, though, it won't take any more than popping a new map in place to "raise" a new 3D image.
I'm not sure it'll be of fantastic value to anyone, but it'll be fun to play with and I'll be happy to share the results.
Just thinking out loud here . . . I may eventually experiment with something that'd spawn trees as part of a particle system at designated areas on the map. That might require a seperate map being painted but that, again, shouldn't take much. Just slap a new layer on over the altitude map and paint in pure white where you want forest. Replace the underlayer with black then set up the script to spawn according to that. Hmm . . .