Textures!.... its whats for dinner?

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Maybe the first program can not find the texture, and the imageviewer makes the 1x1 bitmap, because it couldn't find it. I know this 1x1 bitmap from right-clicking the desktop, and choosing new->bitmap
The textures and the terrain should be placed in the same directory. And if possible, in the .X file, the texture names should be local, I mean without a path.

After finding the correct texturename, free the brush and the texture that you used to find it. Then, reload the texture using LoadImage and apply it to the model. This should allow you to apply and textureblending, I hope.