After looking at terrain issues in many off the shelf engines for a flight sim I came to the conclusion that possibly the best approach would be a combination of scaling terrain distances down (i.e. using 1m scale on the engine to represent 10m or even 90m) and --if necessary-- reset the world center after player XYZ position reaches certain values (this last step might not be necessary)
This approach might impact on physics but physics can also be easily "scaled down" by increasing for the same amount the object mass (and therefore, forces and moments being equal, scaling down accellerations and velocities),
You would also need being able to access the physics engine moments of intertia (which are accesible in Newton but for some reason not accessible in Leadwerks yet, even though josh could easily add them to the engine), this will affect how fast an object rotates after an inpulse.
As Flex says a simulation is a way of cheating anyway but in a credible way, so why not have your jet plane being scaled down to a bee flying over your backyard...
Fred