Hi Andrew -
Typically, you’d use the “Loose” style when creating a loft.
When you get contour lines from whatever source, you’d hope that the terrain is actually on (some points on) those contour lines (and not defined between them). Loose lofting will create a surface that doesn’t go through that middle contour line, and, as such, you can’t (or shouldn’t) use that for this purpose.
IYAM, trying to create NURBS surfaces for terrain is a dead end. In another thread, you asked about downloading elevation data and @Brian_Washburn showed you Heron. Did that not work out?
Usually not, no.
Usually, one’d get a quality dataset, and, if modifications are necessary, use mesh tools to modify the terrain. There are several plug-ins that provides such tools on Food for Rhino. If your workflow involves editing contour curves, you might want to try Jørgen’s TerrainMesh plug-in.
-wim