I'm trying to implement on-the-fly watermarking on my PhotoPost installation, but i keep running into the same problem.
Permanent watermarking works fine (see attached image) however when i switch to on the fly watermarking the overlay becomes stretched and full of lines (also see attached image, although the lines just look like a grey background here)
Both the images attached are of the same photograph and overlayed with the same .png watermark, the only difference is one used permanent watermarking the other used on-the-fly.
That code has not changed really since it was introduced many years ago. I would suspect either an issue with that specfic watermark image or an issue with the GD2 on your server.