You're still going to run into problems with mercator because under mercator the poles project to infinity, so you'd need an infinitely large texture or you special-case the poles. Many renderers do this so it is viable!

There isn't a zero tradeoff 2D solution, it's all just variations on the "squaring the circle" problem. An octahedral projection would be a lot better as there are no singularities and no infinities, but you still have non linear distortion. Real-time rendering with such a height map would still be a challenge as an octahedral projection relies on texture sampler wrapping modes, however for any real world dataset you can't make a hardware texture big enough (even virtual) to sample from. You'd have to do software texture sampling.