It isn't just about fitting the tip in the hole - you gotta' be able to get the chips out. Initially, it can be a tight squeeze but as the hole opens up the chips eject easier.
No, the tip is not on the centerline of the work. It is raised about 0.005 - 0.010 above the centerline to offset tangential forces.
Normally, the flat on top of the tool is horizontal; this is called zero radial rake and allows for as much clearance as the relief angles under the tool provide. This relief under the cutting edge is important because as tangential cutting forces are generated the tool is pushed down and may contact the work. This is why you cannot use too large a tool in a tiny bore; you need to account for cutting forces and how they will affect the tool. This is also why carbide makes the best material for boring bars. It's modulus of elasticity is the stiffest of the common boring bar materials and will be least affected by tangential forces.