Hello,
Wow, just had to say that I like the concept you're working with. AfterBurner was one of my favorite games(both in arcades and Sega Master System), and I've often pondered doing something similar to what you're working on, but keeping it sprite based 2D.
Anyways, to your question, I'd say if you wanted to keep it in rather true "old school" afterburner fasion, go the scrolling matrix route.
I'm sure you remember how you'd "fly" over the same terrain over and over, but it wasn't all that noticable at first, as you had so much air combat action going on, that you'd not stop to "smell the roses".
You can do the same thing, but maybe incorporate a feature that will randomize the matrix every so often, to give a less "static terrain" feel to it.
Also I've never done this, but maybe you could make a couple matrices and then after the first one's edge is reached(actually by draw distance) then load matrix 2, etc alternate back and forth, combine that with a randomization and I'd say that'd be a good start on terrain for a level.
I'm sure you'll be trying to capture the same feel for the action on screen, so really, the terrain will not be overly analyzed by your average gamer, but I'm glad it's something you want to do right, rather than an afterthought.
Dunno, still a noob, so take it FWIW, just my $0.02
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Xatnys
Hello.
Goodbye.