Have done a LOT more testing and there's definitely something working strangely here...
Even if I add a new pic to an existing ad, or change one that is already there, watermarks don't get added.
The add watermarks utility doesn't put a watermark on any of those above as well.
Not sure what the pattern is yet, but a branc new site, it works if people are uploading new ads with new pics, so we haven't had the need to use this capability.
Regards,
Doug