Yes its a known bug and this is the official report on that:
Date of first report: November 17th 2009
Reported by: g_p (Unreal Texture Forums)
Link to forum:
http://www.unrealtexture.com/General/Website/Forums/Forums01/viewtopic.php?f=4&t... Affected renderers: OpenGL, D3D8, D3D9
Involved utx package(s): HubEffects.utx
Used Mergertool: Version 3
Affected maps: - DmGlathriel (RTNP)
Does the bug apear in S3TC UT: No, this bug is limited to Unreal (edit, seems it also apears in UT, reported by Ligtning_Hunter)
Known causes: Waterfalls are mostly added where the settings for the texture is set to masked and translucent. If however the texture is set to masked alone, than the waterfall will disapear.
Possible fixes:
- Using Mertool version 2 solves the problem, this however will render the S3TC HubEffects.utx package unusable due to the procedural texture sitting in the first place of the package.
- Updated Mergertool Version 3 to Mergertool version 4.
- Update of the used renderers.
User end fixes:
- Either live with it, its after all a super rare bug.
- Or use the normal HubEffects.utx package instead the S3TC version.
I did not test it in UT, so if you say now its there as well, than it happens in both games. As the report already tells, its for the moment an unavoidable issue, untill the mergertool is being rewritten

Its either that, or use the normal package, but than you will loose the high resolution nacelles(engines) used on the Vortex Rikers ship.
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