oh, you can, but it's not gonna show on viewport. I thought you only wanted diffuse. Brice did a CGFX shader that blends terrain via vertex color I believe, you might wanna check that out.
Are we talking Default Quality, High Quality or ViewPort 2.0?
If we are talking High Quality or 2.0 then there's settings where you can change things such as "Color texture resolution" (which is 256 by default).
Think this might be why you have a low res layered shader viewport result.
All three views don't display the color + alphas in real time. I have a Geforce GTX 580 so I would assume it should show up fine. I've attached an image of all three render views along with the network and a quick Maya software render.
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AFAIK
If we are talking High Quality or 2.0 then there's settings where you can change things such as "Color texture resolution" (which is 256 by default).
Think this might be why you have a low res layered shader viewport result.