Further to Revolt's nice break down of the different terms, it seems clear to me that "preferences" is actually quite different from "settings" (despite some people using them interchangeably).
If something comes with a default value, then that setting is not a preference until the user changes it!
Whose preference, exactly, does it reflect when still in the default state? ...certainly not the user's (it can only be a developer's), so it is silly to name it name way.
Following that logic, the only things that could reasonably be called preferences are things with a "default value" of "non-existent" (which means they have more in common with "options", as defined by Revolt's answer, than with "settings"). An example would be the ability to have an e-mail app highlight certain e-mails, such as those sent directly "To" you as opposed to "CC" or "BCC". The highlighting would not exist by default, so settings surrounding how the highlighting works could reasonably be called preferences.
This of course, means that "settings" is a better choice for wide use, and should be the standard.