How can I "stencil" images onto my texture using texture paint?

One of the big things on my wishlist for Blender’s texture paint system is a “Stenciling” feature. It’s similar to Mudbox where you can project an image into the viewport, rotate and position, and then paint it onto the mesh that’s behind it.

In blender, I would always use the old stencil feature of positioning a texture on a different UV Set, which defintely works but it’s very slow and cubersome to work with.

Looking for alternatives I’ve been watching some blender cookie vids and in there an alternative method was suggested by Jonathan Williamson:

“Unfortunately Blender does not have a full stenciling system like Mudbox. What you can do however is add a texture to your brush and then change the mode to “Fix”. If you then also enable “Overlay” you can see the texture and position your model accordingly.”

But for the life of me I can’t find any “fix” mode, or overlay mode anywhere in my brush menu. I’m using blender 2.66a. Can anyone help find these settings, and how I might use them?