I show that to be an invalid image all I see is a black empty screen
I use on the fly watermarking on my site and I am using our latest code 8.42 so this is not an issue with the script. That script has not been altered.
I would suggest you check your server because that seems to be where your issue lies. At least that is what I see if I search for that error on the net.
You can try remaking your watermark and see if its viewable as the one attached here is definately not valid.
The issue being here is watermark.php simply calls into play existing server commands which are part of GD2 on your server.