When you do an overlay, make sure you're putting it on a brush. Go to the properties of the overlay and next to the Brush Faces field, click Pick and click on the wall or brush face that you want the overlay to appear on. If it spans multiple, then click on the first one, hold in Ctrl and then click on the others. After you've chosen the brush faces, click on the Pick button again. Hammer is usually retarded and won't show the overlay there after you're done, even though it is. If you have the feature enabled, nudge the overlay up a unit and then back down and it'll show.