Ryan - Caveat: putting a watermark with a "copyright <your name here>" notice on it does increase the potential to recover damages (should some infringer remove the notice), at least in the United States
This was brought up on - http://www.extortionletterinfo.com/forum/index.php/topic,2141.60.html
Interesting. Ryan McGinnis has multiple forum post stating his reasons for watermarking. His reasoning is that it will increase the amount you are able to recover in damages. MikeD pointed out that in McGinnis's extortion letter he falsely accused the website of removing the watermark, when in fact the image was posted on McGinnis's personal blog without a watermark.
Looking at McGinnis's Flickr account, he is inconsistent in his watermarking practice. One has to wonder if he slaps that watermark on right before he sends out his extortion letter, so that he can falsely accuse them of removing the watermark?