there can also be another problem...
display image will do strange things IF
your watermark logo is wider or higher than your image.. and you are using GD2 as resize method.
if this is the case open forums/includes/functions_gallery_imageedit.php
around line 633 find:
Code:
Content visible to verified customers only.
and replace with:
Code:
Content visible to verified customers only.
this will remove the watermark logo width & height check..
Luc