you have to enable the very high setting through the console - "sys_spec 4"
I haven't done this yet but I reckon to create a good POM texture you would first have to build a piece of terrain in max/mudbox etc...
Basically you need a heightmap in the alpha channel of the diffuse texture - the lighter a pixel is the more it will make the POM 'stick out'.
Now with some textures such as bricks you can create this easily by converting the texture to a greyscale and putting into the alpha channel. Because the bricks are probably a lighter or darker colour than then mortar the POM will work nicely, however, with a complex scene such as a forest ground with sticks and stones on it (where the brightness won't necesarily match the height) probably the best way to do this well will be to build the scene in Max, and then use that scene to bake out a normal map and a heightmap.
Very briefly to make a simple POM:
get your texture in photoshop
duplicate the layer, then desaturate it and alter the levels until you have white sticky out bits and black sticky in bits (you'll want to do this neater than I have here)
now copy this and create a new channel called alpha1 and copy this into that channel
Now you need to save your file as a crytiff (with RGB Alpha setting)
and the POM should work