well it sorta can be done.. models can use the ground textures, but you would have to 'model' all of the terrain, none of it would be done in the editor...
try this perhaps, take the sides of your 'island' as low as possible in editor (use the 90degree angle txt doc, or newgen)
next take the floating island doodads, and lace the entire sides with them, so that when looking over the edge you see the islands
remove their movement, and align them with the terrain (this asumes your using the matching outland terrain)
next get a 'cloud' model here, and spam a bit of them around the edges, ect
this should create a nice floating isle effect