You don't save the heightmap as a cfg, you just save it as a png.
Make sure it's in greyscale mode, so you don't accidentally add color to it. Make sure the size is right (513x513 pixels). With some super detailed heightmaps, it will crash too. Like a super faded gradient for example.
You do not need to change or delete other files in the terrains folder, or any other folder. Just create the png (save it to fh>media>terrains), open fh, go to map maker, and the second tab (World) is where you put the name of your heightmap (Terrain Height map). If it's not finding the file, make sure you have the name perfect and that it's in the right spot.
Hope that helps.