Well it looks like it's still a bug because I tried replacing my slideshow.php and watermark.php with 5.5 files and it still did the same thing. (nether of which I had modified from my 5.2 install either)
Let me explain it more clearly what is happening. My medium size for PP is set to 800x600.
I have it so that the site is set to use watermark.php protection.
My image protection makes it so that the medium and thumbnail are in their regular spots, but the fullsize is above the webroot. This is just the plain image protection that 5.2 offered out of the box.
When I view a slideshow. Any image that it's native size does NOT exceed my medium size of 800x600. Meaning it's smaller than my medium size, then in the slideshow it does not show a picture, it shows a red X.
The image loads fine in all other places except for in the slideshow.
When I do a properties on that image that isn't showing and is only a red X in the slideshow, it gives this result: http://www.mysite.com/photopost/data/531/SavNKeawe.jpg
So do you see the problem? The image is not in data/531 because it is the native size showing. IT'S the fullsize image, so it's not in the data directory at all. It's in the directory that is protected by PP and is above my webroot.
It appears that this problem has not been fixed at least in 5.5 because I was using 5.5 files for what I believe are the two files that would cause the problem or cause the problem to be fixed. So it needs to call this image using the watermark.php file, but it's not.
Sorry if I was unclear the first time... I also found out more and I started looking at all the pieces of what was going on. Can you please give me a fix for this or show me that it's working on another site in the manner that I've described that it's not working?