Hi,
You need to use Plan Y projection indeed.
Here are the steps to follow:
1) double click on your heightfield load node (green) which loads your .ter file and read it's dimensions.
The dimension depend on the build size in WM2 which by default = 8km square.
In TG this often loads as 7996m square.
2) double click on the heightfield shader (red) to double check it's indeed using the default 0,0 coordinates @ lower left.
3) open your image map shader and set projection to plan Y
4) set image map size to the same size as your terrain from step 1
5) set position to the same position as your terrain from step 2
6) create a surface layer and enable the purple test colour
7) connect your image map shader as blend shader to this surface layer
8 ) let 3D preview finish or do a small render to check whether it's aligning.
Did this work?
Cheers,
Martin