This setting in Current Drawing Preferences is only for coordinate display and grid.
The input of fractional units in the command line or tool options is not supported.
There was a contribution for this feature, but because of side effects we had to revert this again.
Until you work in Inch dimensions, you can enter this:
2+7/8 , 1+3/16
This will work, because math expressions are allowed.
But when it becomes larger, you have to know the factors yourself.
E.g. for
5yd 2'3"3/8 you must enter something like this:
5*3*12 + 2*12 + 3 + 3/8
or
252.375
Math expressions should even work in tool options like circle radius or parallel distance.
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