I'm not sure if this happens with other quests but right now I can confirm that if the Lost Horse or theWitch's Hut (from Wild Goose Chase quest) spawn inside my territory it will change my Fallen type of land to Grassland which is kingdoms terrain. Now i don't know who ordered that landscaping but they need to be slapped for such an insult to my empire.

I tested this by reloading the same game and continuosly enter the Inn to accept the quest. When I accept the quest the objective location seems to spawn randomly. In one case the witch's hut spawned and it created territory that was added to mine (influence) while at the same time creating grassland (Sorry no debugerr for this )

DXDiag: http://pastebin.com/wj2zmtWY

Saved Game File: http://dl.dropbox.com/u/8088480/IDK4%20witch%20hut%20Spawns.EleSav

On one occation I kept entering the Inn and it didn't spawn an Inn, I believe I reloaded around 3 times till the game crashed. After reloading the game it worked though and I have no debug for that case (although I believe it should be included in some of my crash reports)

Heres a screenshot of the saved game I provided in case you want to recreate:

Yup the yellowish color is a graphical glitch but these glitches happen randomly to me.

I quickly closed the game when I got the Hut to spawn inside my territory and copied the DebugErr.

Debug for when the Hut was created inside my land: http://dl.dropbox.com/u/8088480/debug%20%28witchGrassland%29.err

I dont have debug for when lost horse was created inside my territory but in this pic you can see the grassland marked by arrows (Above).

The witch's Hut created influence borders and it also created grassland around it. I believe I reported this issue a while ago and I'm not sure if this is intended or just been overlooked.