OK, I used a work around to fix this, it seems that all but one category applied the watermark. When I checked that cat the permissions where correct, but when I went to the directory the pics where stored in sub directories where none of the other dir that worked did. So I created a new categorie and simply moved the pics over to the new cat and then deleted the old cat and now they work. Not sure why that "one" category was messed up like that but every thing works correct now.
