Copied from the official Marquee rules:

"Preparing the Battlefield
Players set up the battlefield and determine the first player per theMechWarrior: Dark Age rules"

Set up the battlefield includes placing terrain, correct?

I believed that terrain is placed in this scenario, but there seems to be some disagreement on this... am I right or wrong?

I was thinking about this too.

It certainly looks like you do. This makes Derek Hasbani that much more viable if a water terrain (multiples) is placed. The increased vent doesn't do much for him but this does.

Will this change what pieces you choose to bring?

Erm, not to go completely off topic but I've already made fun of someone at the venue I play at for merely suggesting using Derek Hasbani. If you'll notice, in the special rules it states that no attacks over 6" can be made. So I'd figure that atlas would only a big huge hunk of plastic sitting around in water just wasting a staggering 286 points of your fighting force. I would suggest using a SS mining mech if you're going to play for them.

And on topic, I believe yes you do place terrain. Another suggestion is to only place hidering terrain if you want to avoid hover units.

I was thinking Diane Jameson personally, her higher defence would be a minor deterrent against charge attacks

Back onto the original topic, yes, you are correct. Setting up the Battlefield is according to the Standard Game (New RB p27, p7; Old RB p31, p8).