Hey Peter,
I don't know if I'm understanding you completely, but it is definitely possible to properly georeference lines on terrain. Terrain pushes the height up along the ellipsoid surface normal, so the point on the ellipsoid and the point on terrain have the same longitude and latitude. What I think we're seeing in your screen shot is just the effect of the perspective transformation. That is, objects that are farther away from the camera look smaller or closer together.
If two objects (say a polyline and a feature on an imagery layer) have the same longitude and latitude but different heights, they can look significantly misaligned depending on the camera position. If that's happening, you'll see the alignment change as you move the camera around. For example, when the feature is in the center of the viewport it will look fairly well-aligned, but as it moves to the edges the misalignment increases. The more different the heights, the greater this effect.
I'm reasonably confident that the Cesium terrain is properly accounting for the geoid, but not 100%. I'll check it out as soon as I get a chance and let you know what I find.
Regarding your other question about querying the Cesium terrain, there's no built-in way to do that currently. But you can download the tiles yourself from JavaScript code and interpolate the heightmap.
Kevin
On Sun, Dec 16, 2012 at 6:54 PM, Peter Antypas
<peter....@gmail.com> wrote:
After struggling with this for a bit, it just dawned on me. I wondered, if tiles get texturized and fit on a mesh, don't they "stretch" at high elevations? So I did a quick and dirty test by rendering two images of the exact same location, one with terrain data and the other without. This GIMP screenshot shows what happens.

That's why what I'm trying to do cannot work. When the tiles stretch, the geographic coordinates of the futures they depict shift. Doh!
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