The thing is, the watermark works fine for categories that already existed before my upgrade to 6.01 but when I try to process the images in a category that was created after being upgraded to 6.01 it doesn't work and gives the error I mentioned. It shows the thumbnails on the bulk upload page, but when it tries to actually process the images is when it gives the error.
My watermark worked fine on my previous version of PP and I didn't change it. It's just a png with transparency.
Any other ideas I can try?