I have a similar problem where it seems like it is impossible to get anything right with these watermarks now. It used to work when i tried it a few weeks ago but since then i have upgraded to the latest version and have nothing but trouble.
My problem is that i choose an image and the preview looks good only to have the final result being just a text watermark. Tried just about everything with reverting back to backup versions numerous times. Cleared cache and even downloaded images of ftp to double check the results.
Seems to me something changed for the worse after upgrading to NextGEN Plus v1.3.5. Hopefully the fact that more people than me are having problems, points towards some bug that needs fixing.
