Are you able to takeoff guided ?
And I agree with you concerning the EK3_ALT_SOURCE it need to work with the RangeFinder.
Looking here: http://ardupilot.org/copter/docs/parameters.html#ek3-alt-source-primary-altitude-sensor-source
EK3_ALT_SOURCE: Primary altitude sensor source
Note: This parameter is for advanced users
This parameter controls the primary height sensor used by the EKF. If the selected option cannot be used, it will default to Baro as the primary height source. Setting 0 will use the baro altitude at all times. Setting 1 uses the range finder and is only available in combination with optical flow navigation (EK3_GPS_TYPE = 3). Setting 2 uses GPS. Setting 3 uses the range beacon data. NOTE - the EK3_RNG_USE_HGT parameter can be used to switch to range-finder when close to the ground.
0 Use Baro
1 Use Range Finder
2 Use GPS
3 Use Range Beacon
So we should be able to use the rangefinder as the altitude sensor using opticalflow -- it works in EKF2--, but I seems that its not implemented with EKF3. Note: I asked on developpers for comments.