I haven't used tex2Dlod(), but from the MSDN page, it looks like x and y in your texcoord should be a standard UV texcoord, so most likely 0..1 normalized. And since your addressing is set to CLAMP, it will just grab the edges which may be flat? Try playing with those a bit.
Also I'd use PIX and see if the texture is actually bound and, more importantly, has valid data in it.
Good luck!
Perception is when one imagination clashes with another
But here is my new Error: The current vertex declaration does not include all the elements required by the current vertex shader. TextureCoordinate0 is missing
The symbol "TextureCoordinate0" is not in the code you posted. Are you sure that this shader actually gets compiled and set as the active shader? Furthermore, are you sure that you want to use float4 for the uv coordinate input and output? The logic in the code suggests that you only make use of the xy part (which fits in a float2), and even without trying to compile the code I can guess that this would cause compilation errors as well.
The actual error is just as it says on the tin: the vertex declaration (which you establish in the host program, and which describes your vertex buffer format to the hardware) has to contain all the elements that the vertex shader expects to find in the input streams.
The error can be caused by the fact that an another shader is bound instead of the one you expect to be bound; this, in turn, can indirectly be caused by a failure to compile and set the expected shader.
Sounds like this is XNA, which has pretty good error checking. TextureCoordinate0 is just referring to the TEXCOORD0 semantic.
So the problem is that the vertices you're drawing with your effect do not contain TEXCOORD0. What is the vertex format you're using? What does your draw call look like?
Sounds like your vertex declaration is probably only using something like a Vector2 , which if you've got a regular grid should really be all you need along with a texelwidth to calculate the uv for the heightmap?
I've got a sample terrain object doing a shader heightmap at :
http://code.google.com/p/xexuxjy-xna-games/source/browse/trunk/MagicCarpet/MagicCarpet/com/xexuxjy/magiccarpet/terrain/Terrain.cs
http://code.google.com/p/xexuxjy-xna-games/source/browse/trunk/MagicCarpet/MagicCarpetContent/Effects/Terrain/ClipTerrain.fx