Actually, the engine might have the capacity to optimize the terrain by not trawing terrain behind hills and using larger triangles for flat areas. Also, LOD optimization: Use fewer triangles for farther parts. (So, flat and/or mountainous terrain and/or low-texture terrain will be less laggy, but terrain would never be a major concern anyway)
Basically, converting it to a blockish version will almost certainly lag more, would require that it is an actual object(like slate's floor), and doesn't repeat forever like terrain does. However, creating a blockish model in the shape of the terrain would still be a good idea if you want it for the shape, not the framerate (and it would still get a very good framerate, I just suspect that the engine could do better with a .ter)