For any place using StreamingEnabled with default settings, terrain that is not initially within the StreamingRadius will be deformed (and stay deformed even after bringing it within the StreamingRadius). This is only visible on the individual clients; the server view shows it as being normal. Swimming and interacting with each “deformed” part will correct it, but until that’s happened it looks glitched.
What you are seeing is low-res LOD terrain that is doing a poor job of approximating the full resolution terrain.
You mention that it will “stay deformed even after bringing it within the StreamingRadius” but the repro place you attached has the target radius set to only 64 studs. This means that the server will never stream the full resolution terrain beyond 64 studs from the player, which is why it appears to only fix when you “interact” with it. If you increase the target radius to a more reasonable value (e.g. 512 or 1024 studs) the issue should go away.
We are working on some improvements to how terrain and terrain LOD work, but in the meantime my recommendation is to avoid using such a small target radius.
