Why is this not possible?

I was trying to make just a slightly bumpy terrain height map so I was using the render clouds/difference clouds and using 32,32,32 and 36,36,36 for the colors and 256x256 file size. and nomatter how I blend or blur it, my terrains always come out as solid circles sticking straight up into the sky, I've used Ken's mathematics to set the maxterrainheight and all that.

So can the engine only accept certain grayscale colors and not the shades inbetween, or why is it always the same thing. I'm just really confused, cause I don't really want to draw out a contour map or whatever.