You may be right. I tried to upload watermark.png to the forum and got a different error:
Error creating thumbnail! Error code: 1
"/usr/local/bin/mogrify" +profile "*" -size 100x11 -quality 70 -geometry 100x11 '/home/httpd/vhosts/memphisracingscene.com/httpdocs/pp/data/574/thumbs/watermark.png'
... so I guess that means it can't handle .png files? Uh oh.