Yeah... This should work ir you move your prefabs around... I think it also works if you rotate them. The FIT thing can lead to strange results, for example, if the prefab only displays part of the texture it will be shown entirely, as well as if the prefab features the texture tiled twice, fit will only tile it once (that is, not tiled).
Use the TL button to turn it on and then quit and restart Hammer. It should be left as default.