If you haven't already, look at the Scene files included Step(1-9).max
This will give you an idea of what the rest of the process is.
1. Create the water line by using the slice modifier operating on 4 sided polygons
2. Collapse the mesh into editable mesh. (right click on the map> collapse to)
3. NU scale the map on the X-axis (to 10 ) to make it easy to select the polygons.
4. Step3.max With the Polygon select tool (red 2D square, under selection Rollout) Select the polygons under the water line.
5. Press the detach button under the Edit Geometry Rollout and accept the defaults (object01) Select this object
6. Use the Triangle select tool to select all the triangles in Object01 (MUST USE TOP VIEW!)
7. Press the view align under the Edit Geometry Rollout.
8. Unselect the triangle selection tool
9. Select both mesh objects, Land and water, and Set the X-axis NU scale back to 100
10. Set up your materials in the material editor, copy the first to the four other squares.
11. Set the images to reflect your color map you made earlier and split up
12. Choose image1.tga for the top right, image2.tga for the 2nd from the right, image3.tga for the next row, etc...
13. Import the water material and set it to use the water texture file supplied (convert from .jpg to .tga)
14. Hide your water (Object01)
15. Select your land and split it up into pieces by this method:
-Choose the Polygon Select tool and select the part of the map that corresponds to image1.tga.
-Press the detach button and check the element checkbox, then apply a UVW map Modifier, then collapse the mesh.
-Repeat for each of the four sections.
16. Choose select by element and drag drop the texture materials, or apply by selecting and pressing the assign selected button.
17. Move your land below the X-Y plane at Z=0 (below the dark gridline)
18. Unhide your water and move it as close the to original waterline as possible.
19. Select both your water and your land and apply the NORMAL modifier to them, check the Flip Normals box.
20. Export as level.3ds