I’m glad you agree it looks out of place, to this day there are still people who think the terrain morphing is not an issue…
Although it is indeed a custom 3D model, an observation I’ve made is that, unlike trees and buildings, POIs do actually sit on the underlying terrain mesh. If you watch the above video carefully, at approximately 0:03 and then again at 0:07, you can see the stock terrain of the main rock morphing to a new shape before the 3D rock models are applied.
The reason POIs are popping up and down as you approach them is precisely because of the terrain morphing. I’ve documented this with videos for both the Preikestolen and the White Cliffs of Dover in the morphing thread. But in the end certain areas, like Lord Howe island, suffer the same even without POIs on top, and I find that Norway (after the Nordics World Update) is the worst offender in general.
To answer your other question, increasing Terrain LOD does help with the morphing somewhat, because it is moved further away from the camera. This is the mainly the reason I would like to see LOD extended beyond 400 in the menu (but only if photogrammetry is not affected), yet in some extreme cases, like those I’ve already pointed out, it will not really help no matter how much LOD is brute-forced, and areas with high-detail mesh like Switzerland will still morph even when the camera is very close. But this is related to poor shape retention which is more suitable for the morphing thread.