I think what you need to do is linepick the y position of your terrain and then position the dust at this y position. Have a search for LinePick code.
If I understand you correctly, you are suggesting that I determine the altitude of my terrain model at the bullet's position and move my dust animation to that altitude. However, I can only imagine that working if my terrain were completely flat. My terrain model is quite mountainous, I'm afraid. By my thinking, that would cause the undesirable effect of placing the dust animation much higher than the bullet's point of impact if the bullet penetrated into the side of a mountain.
Thanks anyway.