Using a layered template...?

[Spatlese]

I am using PSE7 and a layered .psd template.....when I drag "paper" onto the layer it doesn't take the shape of the layer....instead I get a "little" thumb nail size that I have to "stretch" to fit the area.....Am I doing something wrong? This happens even for the first or background layer....the paper is 3600 x 3600 in size... but when I have to "stretch" it to fit only part of the page, the patterns distort.... I've read the tutorial for PSE here, so I thought that with using the templates it was as simple as click & drag....

any helpful tips are appreciated!! Thanks!