At first, when I didn’t check “Enable Edit Layers” when importing tiled landscape, I did not even get landscape deformation when I dragged and dropped the lake; I only got a visible spline. Then, based on the suggestions in this thread, I started over and this time checked “Enable Edit Layers” in the dialog that comes up from Levels > Import Tiled Landscape… Now, when I drag and drop the lake on the landscape, the visible spline also causes land deformation, but there is no light/texture compiling or whatever and the actual water does not display. I can get the water to display on a default landscape that is created when I go into landscape mode, however.