Am having the same problem with ReviewPost.
rp_products have the watermarked field set to "No" for the majority of the pics. The actual pic I'm trying to view has it set to "No". Am using ImageMagic with a gif image. Watermarking is enabled on a global basis and for the usergroup Admin for which I am testing it out.
Should I also run:
UPDATE rp_products SET watermarked='no' WHERE watermarked = ''
Enable On-The-Fly Watermarks
(Requires GD2 and you must edit the file watermark.php) is set to No however.