I spoke with spacegaier already about this on IRC. I am 'konradsurf' on IRC, 'cyrfer' on OGRE forums.
When artists make flat models (like a terrain tile) the current behavior of the LOD Distance strategy is not appropriate.
You can see the behavior here (needs audio).
I attached the scene used to make the video if it is helpful.
The distance that is used is not a closest point test with the mesh, but rather a closest point test with a sphere bounding shape. Maybe using a box founding shape will improve the behavior.
1. Define a material with several LOD distance values. I changed emissive color for each LOD technique and relied on emissive with no ambient or scene lighting.
2. Make a scene with a flat terrain tile (simple mesh) and a small box on the terrain tile.
3. Apply the same material for both the flat tile and the box.
4. Watch the behavior as you zoom away from the camera. The box's material changes, but the tile does not even though the camera is farther from the flat tile.