That algorithm is more 'correct' in that tall peaks throw shadows over valleys, however it is not optimal by any means. A simpler method will do just as well for you in most cases.

Simply shade each texel based on its angle from the lightsource. For lightsources that are sufficently high enough (shadows are no longer cast long), this method will do just fine. Only when you want a lightsource near the horizon does it show up as being unnatural (and even then, many people might not notice unless the terrain itself showed off this feature regularly.

Here's a link to another shader scheme, this one is much fancier, but allows real-time dynamic shading from infinite point sources. http://www.dgp.toronto.edu/people/JamesStewart/papers/

Especially: http://www.dgp.toronto.edu/people/JamesStewart/papers/tvcg97.html