Yes, terrain texture splatting uses alpha blending to achieve its look, it also uses multiple texture lookups per pixel fragment, but a lot of terrain engines use it and it can look good. The usual limit is 3 blend maps, each with 4 (a,r,g,b) channels, which yields 12 textures which fits nicely within even PS 2.0's 16 texture lookup limit. You don't need multiple texture cords in the model, nor do you need to input multiple texture cords to your VertexShader. You can produce the multiple texture coordinates inside the Pixel Shader using some arithmetic.
So the other method you suggested is something I've seen in Dekaron Two Moons terrain, its a tile-based terrain engine and either an artist or a pre-process tool generated bitmap images for all the different kinds of material blends (grass to rock, rock to sand, etc). Personally I think the terrain texture splatting is more versatile and looks better.
One thing you can do, which I've seen the Dark Age of Camelot terrain engine do, is use the high detail terrain splatting for terrain patches within a close radius of the camera and then just stretch a single large LOD texture across all the further away terrain patches. If you select the distances correctly, you won't even notice any seams unless looking straight down on the landscape.