When i was trying this in drupal 6 I would receive errors and watermarks would not be applied properly so I was doing some work with it (as I realize you haven't really released the d6 version of the module), but I noticed that if you change the operations in hook_nodeapi to run during 'presave', that it appears to work a bit better... I'm still testing to see if everything else works.

Thanks for the module, this helps a lot!