I was wondering if the LOD feature is working on top of an array modifier.
I once tried to setup terrain from a heightmap. It would auto-generate terrain tiles using displace, it would create different LOD levels with the decimate modifier and a vertex group (so the edges still lined up). It worked great in the viewport, but didn't work in the game engine.
Modifiers are a bit strange in the GE. Sometimes they appear correctly, but when adding objects you get CPU spikes (there was one case I worked on where modifiers caused a drop from 60FPS to 20, but that was on lots and lots of objects). Other times they simply don't work. LOD seems to make modifiers in the GE not work.