Yes, it does work perfect... as was said, units always show up 'on top' of the city graphic, so for some things this is good, such as city graphics with no massive skyscrapers or towers. For things that 'tower up into the air', it's not good, because the unit still appears on top; as if it is climbing up the building.
I suppose the graphic size is unlimited also (to certain extents at least), so landmark terrain features can be put into scenarios using a city on the very side of the screen or something, and using an absolutely huge graphic size. If you want the Grand Canyon somewhere, can be done. This should be very interesting to add some eye candy.
Tom