Thanks for the kind words.
My method is defenitly not the best, it works good on this small island but if you many of thems (several terrains) or a big coast you should improve it or do it another way.
If you want an autamated process you should read this:
http://www.gamedev.net/community/forums/topic.asp?topic_id=281637(note: this is not 3dgs specific but it shows you the right direction)
Ok, the dumb way (good enough for this island level):
export your terrain mesh and import it in Cinema4D (or any other modell editor)
Delete the faces over and under the shore line, or for better quality (but more polys (500 or 2000 polys don't really matter for a small scene)) use boolean function like you can see in this shot:
you get a mesh like this:
Now assign this mesh in cinema a new material using the cylinder mapping method, so that the foam texture later go around the island.
Export it, import it into med, add your foam texture and save it as an mdl, then use an function which sets the vertecs of your shoreline slightly higher than the terrain and water.
Last but not least scroll your foam texture with an fixed function effekt or if you are using standart or a5 use the .u .v parameters (of course you can do some fancy blending and wabbling function with a shader if you want).
Thats all.