Try this for watermark images on all products it worked ok on my local computer.
In function.thumb_imp
Change line 527 to this
Code:
$overlay = imagecreatefromgif($params['overlay']);
Under
Code:
/* load the "overlay"-image */
Create a folder watermark in your root images directory.
In skin1/product_thumbnail.tpl
Change this
Code:
{thumb file="$tfile" width="$image_x" link="false" hint="false" overlay_position="$overlay_position" overlay="$overlay" sharpen="$sharpen" get_image_path="$get_image_path" html="class=\"$class\" alt=\"`$alt`\""}
To this
Code:
{thumb file="$tfile" width="$image_x" link="false" hint="false" overlay_position="$overlay_position" overlay_position="5" overlay="images/watermark/site.gif" sharpen="$sharpen" get_image_path="$get_image_path" html="class=\"$class\" alt=\"`$alt`\""}
Create a watermark image and put it in images/watermark
To change the image name just change this (site.gif) in the product_thumbnail.tpl
There might be better ways of doing this some others might like to add to it.