Yes, when you start a line to make the target's track through the points you shouldn't start it exactly on the point. But slightly before or after it. It turns red because the game thinks you want to adjust one endpoint of a line you have allready placed. Just make sure that the line passes through the points in the end, no matter where the endpoints are. And you want to extend the future end of it, not stop it at the last plotted point.
But in reality the uncertainty of the measurement is much bigger anyway. You really ought to mark those points with circles of several 100m in size. The watchofficer readouts are way to precise.
I haven't got personal experience in using Manos Gui yet. (I want to but I'm still on patrol) But based on these images it should be on the attackscope and TDC panel:
http://i545.photobucket.com/albums/h.../attackmap.jpg
http://i545.photobucket.com/albums/h...man94/1-28.jpg
Maybe the panel is hidden with the button above-right of the text panel. That's how it is done with the OLC Gui.