Java, 307, 304, 303, 299299 298
This is for sure a "perfect" challenge for some Java codegolf :)
class M{public static void main(String[]a){int c=a[0].indexOf('|'),i=c,d,v;char[]r=a[0].replace("|", "").toCharArray(),m=new char[(v=r.length+c)+c];for(;i<v;){m[i]=r[i++-c];}for(i=c;i<v;i++){a[0]=i%c<1?"\n":"";d=m[i];System.out.print(a[0]+(d<49?'.':m[i-c]>d|m[i+c]>d|m[i-1]>d|m[i+1]>d?'-':m[i]));}}}
Input (pipe '|' method):
34565432100100000000|45676543210000000000|56787654321000000110|45676543210000001221|34565432100000012321|23454321000000123432|12343210000001234543|01232100000012345654|00121000000011234543|00010000000121123432
Output:
---------..1........
----------..........
---8-------......--.
----------......--2-
---------......-----
--------......------
-------......-------
.-----......-----6--
..---.......--------
...-.......-2-------