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Yes it works, just keeping it in the zip is better for performance as it will create an optimized binary file of it.

Yes, the Outhouse thread is not clear, that's why I summarized the steps to perform in my post.

So you shouldn't assume that we're not telling you everything from the start : it's just that you don't know yet your way around in cfs3 as in cfs2, and you're not confident about your ability to do it.
However, and from my own experience (I had cfs2 and modded it to my heart's contents), I would like to express my disagreement with the opinion floating around forums (especially the cfs2 ones) that cfs3 is harder to mod : "different", yes, but that doesn't necessarily means "harder".

All of this IMO, of course, and no hard feelings too 

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Yes you did summarise very well, and I thank you for that. But I only got the full answer in piecemeal fashion, following the less than illuminating - perplexing even -Simouthouse thread which you noted. I really thought they'd have spelt it out properly over there, but they're obviously on a higher plane than we mere mortals. So that's why I took the trouble to try and spell it out properly over here, for the benefit of those who follow.

Of course, when you mentioned CAB files, I immediately thought of STRIKE FIGHTERS and how you need a special programme to open them, and of course alarm bells went off. Turned out just to be an ordinary zip, fortunately.
My main point is that whilst I fully appreciate the time and effort people take to answer newbie questions, I feel that there's little point if the answer is not completely clear. I always feel better if the person with the answers treats me like I don't know my way around CFS3, and takes me through the process in fine detail with no surprises.
Because time and time again, I've gone through a detailed process and suddenly Windows or some other programme pops up and asks me for a response that the people who wrote the guide forgot to mention. That's when panic takes over - make the wrong guess and you could end up with a dead computer. (Just had one of those moments with changing graphics drivers this afternoon. Fortunately I guessed right, and the computer lives.)

Interestingly, although I work with FOX-FOUR I don't completely know my way around CFS2. When the other guys started sending me ships and stuff, they'd say things like "stick them in the usual place" to which my first response was unprintable, and my second was: "I am not an expert on ships, please tell me where this is supposed to go, and I'll make a note of it". We should never assume the other guy knows everything that we know.

We'll just have to disagree about the CFS2/CFS3 modding. I can just about pull off 2D cockpits in CFS2, but I couldn't even imagine where to start with 3D cockpits in CFS3. And what's more important, I do not like 3D cockpits.

No hard feelings meant or taken  8)

Just for the record, until I noticed this thread I too had no idea that CFS3 modelled shorelines.  I just thought it "strange" that MS had left the line between land & sea  so stark & unrealistic when much of the other scenery was so good (esp. after adding WM's scenery from the SOH site).  "Shorelines" were NOT disabled in my CFS3 Config settings, so I just assumed I was seeing the best that MS had to offer! 

Must say I do agree it is a bit disappointing that the only way to find & fix this "problem" is being lucky enough to stumble upon a thread such as this one.  It would have been nice if MS had posted some notes on it official site along with the other patches & "tweaks".

Checked my computer briefly last night and sure enough the "Terrains2" folder was there, but completely empty ... even though I don't recall any errors with the original install which was at least 18 months ago now. 

Thanks to the information here from you guys it only took me a minute to copy across the two "zip" files from the "CAB8" file on Disk 2 - didn't have time to test right away, but I'm looking forward to checking out the beaches once I get a moment to have a fly.

Cheers - GhostFlyer.

So then it wasn't a dumb question then if it helped a few others out too ?

Yeah, I was of the same opinion when I first bought CFS3, thought the shores were ugly as all heck.  But back then I was involved more with the boards and solved the problem.

Which is why I knew there was a fix this time around.

I'm also a big fan of CFS2, the graphics are great (when tweaked), but the program is soooo unstable, keeps crashing and can't be fixed without complete reinstalls.  Drove me nuts. 

But it sure was fun farting around in the Pacific.  Europe is fun, but sinking carriers with torpedos is unbeatable.

Just for the record, my terrains folder was also empty. Now sorted, thanks!