Demo page are showing terrain test in action. are there any plans to incorporate that into jMe?

Terrain is projected for inclusion in the 0.6 release of jME. As far as I know, mojomonkey will be in charge of the implementation. You can ask him about it when he gets back from vacation.

Yep, terrain will be in the next release. It will be a different implementation than previous. Much less noticable popping of LOD changes.