Terrain shouldn't be popping in - I'm not doing anything that fancy. Possibly you had ended up with your ship inside the terrain? The collision detection won't do anything when you are well inside, say by teleporting. You shouldn't be able to sail through it, but this might break down if time acceleration is very high.
Nope, I sailed there in real time, then sailed out again. The map was showing me a bit father west than in reality, but definitely in deep water. Again, the extent terrain being drawn was dependent on camera angle (or perhaps altitude). At low angles I could see the 2-D tree objects on the horizon, while moving the camera up revealed the outlines of the blocky island object itself.
I just teleported there on my work PC and everything looks normal, though. Actually the coast is more detailed this time around. Could there be LoD issues for rendering terrain when using travel mode?