The "bug" did not appear in the unmodified version of R:TW 1.2. So it appears the problem lies somewhere in modding other files. I will look into this and post any results here.
I would've given it a try myself but my comp is in repairs (should have it back today). I hope it doesnt happen in my mod cos I find terrain modifiers rather important for good strategical gameplay.

Was this test ran on grassy flatland ? I ask this because that map is a bit weird. For example there is a patch of terrain near the bottom of the map were units can hide even tho there is no forest visible (and the units did not have the "hide_anywere" or "hide_in_long_grass" attributes).