@MagicSpear
I was able to reproduce your results using the heightmap.bmp you attached. The issue is with the color palette embedded in the bmp file, not the fact you are running the GOG version of SC3KU.
I opened your heightmap.bmp in IrfanView and saw that it is an 8 bits per pixel file. This indicates that it should be an indexed color image with 256 possible colors, which is the required format for SC3KU. Of the 256 possible colors, your image is only using 36 of them. (https://www.irfanview.com/)
Looking at the color palette in IrfanView (Image -> Palette -> Edit Palette) reveals that the palette is not the full greyscale spectrum from 0 to 255, but rather an optimized palette specific to your image’s 36 unique colors. In the following screenshot, index 30 highlighted in yellow is using RGB(37, 37, 37) and index 255 highlighted in red in the bottom right corner is unused. The index and RGB values would be identical in a palette with the full greyscale spectrum.
SC3KU reads the palette index not the RGB color value to calculate terrain height. In your case, when you have a pixel with RGB(37, 37, 37) which you would expect to be land, SC3KU reads it as index 30 which is water at 0 m elevation. This is why most of your heightmap ends up being below water! See this post if you need the index to elevation conversion:
I used IrfanView to import the full spectrum greyscale palette (Image -> Palette -> Import Palette) into your heightmap.bmp and saved it as new bmp file. Both the palette I used and the new bmp are attached (palette_256grey.pal heightmap_fixed.bmp). The following screenshot shows the new bmp imported into SC3KU. It does not match the second screenshot in your original post because of the terraforming you did within SC3KU.
To further emphasize that SC3KU reads the color index, I also attached heightmap_colorized.bmp that is an 8 bit per pixel image that does not use greyscale rgb values. Instead it uses 256 colors where blues are water (index 30 or less), and orange/pinks are land (index 31 and above). I had to do the colorization in GIMP rather than IrfanView.
Hope this helps!