Well, the colors are correct, so I wouldn't use the term "washed-out". However, that terrain is very blurry and there's lots of tile mis-matching. The terrain looks correct in the background of your last screenshot; that's how it should look everywhere.
First thing to try: is your "texture transition" graphics option enabled? Is your terrain detail at its highest setting? Check your game options first in case something isn't right there, because it looks like it might not be.
Next thing: before you installed TSHv3 did you have TSH Objects Packages Part 1 v1.6 and Part 2 v1.42 installed? The new TSHv3 unified landpal format will not work properly at all times unless these objects packages are installed.
Next step: If the objects packages were installed, overwrite your landpal and tile files with those found in your TSHv3.06 full download, TSHv3 to 3.06 patch download, or TSHv3 North Cape Landpals with Lighter Water Color download. In any event there are 39 files each in 2 folders. landpal.pcx and landp01.pcx through landp37.pcx make up 38 of these files. The 39th file is the tile file, either ncape.til or iraq.til. Put the 39 files including ncape.til in your /FA-18/NCape folder, and put the 39 files including iraq.til in your /FA-18/iraq folder.
Are you using the TSHv3 Enhanced North Cape Terrain Textures (TSHv3_Terrain_Textures_v2.0.zip)? If so, you will need to reinstall this and you have just overwritten it.
Let me know if this fixes the problem.