Display titles and teaser doesn't show themed teaser

When I select "Display titles and teaser" it shows the title as a link and the body field, but not what I have setup as the teaser in my .tpl.php. The code I have in my template is

<?php if ($teaser == 1) { ?>

<?php print $node->field_photo[0]['view'] ?>
<div class="views-field-title"><span class="field-content"><a href="<?php print $node_url ?>"><?php print $title; ?></a></span></div>


<?php } else { ?>
...

which works fine to show the teaser (photo with the title and link under it) in views, taxonomy pages, etc, but it's not being used with Similar By Terms. Am I misunderstanding how this feature works? Ideally it would just show the teasers rather than making a bulleted list out of them using this option since the title is included in the teaser template. Any thoughts appreciated.