Lighting headache, static and dynamic lighting messed up

I've been experimenting with two things: 1) shrinking the square size used by the terrain system so I can have more detailed terrain and 2) loading the terrain from a heightfield bitmap.

I don't know if its 1 or 2, but something is causing shadows to get all messed up, both static and dynamic! (See above). Static shadows just look wrong and dynamic shadows cut out.

Anyone have any ideas?