Unfortunately I have absolutely no idea how the stitch mode is meant to work! But I will have a look at the schematic tomorrow night and work it out. The schematic you posted shows more pots than you have on your front panel, so some of the timers on your unit will be fixed (so you might for example be able to alter the welding ON time but not the time between welds in stitch mode). You also have two more diodes in your unit than shown on the schematic and this is related to the lower number of pots as well. If I actually find some time to mark up that schematic to accurately reflect your unit it will all become clear.
Reference your preset issue, it might be worn out. They tend to be erratic (noisy) when the carbon track wears away, a bit like the volume control knob on an old radio that 'crackles' when you turn it. Very cheap to replace though (very soon you'll have replaced everything apart from the case )