Scott, I checked both, manual and automatic watermarkig, watermakr selection etc. and everything works smoothly. I don’t know what was wrong for you.
But I think of something – do you have some experience with WordPress themes and wordpress image sizes especially. Cos’ when it is applied to selected image sizes it is not visible on others. In other words, maybe the image sizes you applied watermark to are not used in your theme, thus you think it was not applied and the plugin’s not working.
Just a guess but I have no other expalanation as it works exactly as it supposed to.