I'm almost completely sure it is currently not possible to display
custom 3D terrain in the GE plugin.
You could render it as a color map or as isolines and display it as a
ground overlay, but that's probably not what you want to do.
It would also be theoretically possible to generate a COLLADA model of
the terrain from your DEM and import as a KML <Model>, but that couild
get pretty involved.
Cheers,
Ted