HI
There seems to be a similar problem with version 3.51.
i.e.
Place a clip or image on the timeline and another image on the overlay track. (Covers the timeline correctly when played)
Now SCALE used to reduce the size of the overlay and POSITION used to move the reduced image to (In this case) top right.
The overlay thumbnails shows it positioned correctly now top right against a chequered outline.
First play of the timeline appears correct with reduced overlay in top right over the background main sequence image.
Following this, the right and left preview pane only shows full size image of the overlay. The Thumbnails below this however show the correct image of the main sequence image with the overlay top right.
So, although the thumbnails show everyhting correctly, the preview shows only the overlay fully covering the timeline.
Nat