(You edited your post, mean-o! :)) Dynamically selecting the LOD on distant chunks would work indeed, but it would be negative for the FPS. I wonder how much though.
That’s what I do now already (each chunk being 66 by 66 tiles).
However, at the moment the landscape is rolling, so the LOD changes are quite smooth. Once people can start digging it’d not be rolling as there can also be a big peak on half of the chunk and a big hole on the other half of the chunk. My formula at the moment would then draw the land straight, but once you get to the higher LOD levels it’ll change a whole lot. On top of that the texture of the dug out land might be different than the texture on the peak, making the jump in LOD even higher.
The more I think about it the more I realise that it’s possible but extremely difficult to get right without ruining the FPS.
Mike