Terrain.png

As of update 1.5 that came out in about June 2013 (I think it was), the texture files now use separate textures located in folders. I am not aware of your reason to look for "terrain.png" which has always been in the main folder of the texture pack (texture packs were used up until the release of 1.6, since 1.6 Minecraft only supports resource packs with enhanced customization like sounds and language files), and now in the resource packs all the separate textures that used to be in terrain.png are moved into this path: (resource pack folder)\assets\minecraft\textures\blocks\.

As far as I know, terrain.png was removed somewhere in the early stages of the 1.0-1.3 range. You'll have to do a bit of digging, or go download Mine-imator and take the terrain.png that it has.

Heres the secret:

Its all seperate images per items now buddy!