I would like to use an image as a watermark, but I don't want it to seem odd on the picture....can't you resize the watermark before applying?
For my remaining WordPress site, I have been using Scissors Continued http://wordpress.org/extend/plugins/scissors-continued/ which is a great little plugin. For watermark, I can put a value - never make watermark more than x% of image and it resizes watermark before applying. Neat. Hope you can do it too.