Paul, unfortunately, Therma-3 is a really bad choice for model railroad use. It's meant for roof decks, hence the reflective foil backing. It's a closed cell polyurethane type product that doesn't cut well and, as you've found, is not easy to deal with. Depending on how rigid the sheeting is, it can be hard to drill through without making a mess (and stinking up the place as well). Many common scenery paints and adhesives interact badly with polyurethane. The good thing is that it's easy to make gullies and drainage ditches with the right paint.
You really want to make sure that any paint you use is latex or listed as safe for polyurethane. You can end up with your own version of the Grand Canyon if you're not careful.
