A different transform is used, when TransformVector material expression is used in domain shader.
You should be able to get expected functionality using float3 custom node:
Thanks! I leave this unanswered for now so that hopefully someone of Epic looks into it.
The reason I need this is so I can deform things in other directions than just Vertex Normal up. For waves, wind effects and also to make procedural generated terrain more interesting. Furthermore this is for planets, so there is no simple up direction terrain.
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Thank you Deathrey and Davision. I also encountered the same problem, using the above code to solve. If someone encounters the same problem, this code is useful!