Santewi, voiced my concern, because UDK uses 8-bit, i always used TGAs, and bmps, good to know that 16bits the way to go though, do you happen to know what cryengine uses? 8bit or 16bit?
you can import 16 bit into Cryengine to avoid stepping like this. However, in any case, it might be a good idea to just run a very weak smooth over your terrain, to make sure it's all settled. personally I wouldn't use 16 bit for anything but a heightmap bake in production - it just takes too much time to work with 16 bit…