[greentraveler]

Because I'm obsessed with getting this to work, I just did a fresh install with the same results (although I can now access my .htaccess file).

Vernon, tell me if you see what I'm doing wrong:
"wrapper.php" to /addons with chmod to 775,
"watermarked.png" to /addons (also tried as "watermark.png") with 664.
And .htaccess in /images with "AddHandler watermarked .jpg
AddHandler watermarked .jpeg Action watermarked /addons/wrapper.php"

And it kicks me back to the phpInfo screen instead of a photo. I see how nicely it works on your site and feel like I'm missing something obvious. Any ideas?

I'm running 1.5...are you using an earlier version?