I’ve used the following technique in Adobe Photoshop CS2 to create the watermarks on images I distribute.

1. Open an image.
2. Create a new layer.
3. Select the type tool and type whatever text you want to use for the watermark.
4. Click the color swatch in the toolbar and set the color to HSB 0.0.50 or RGB 128.128.128).
5. Resize and reposition your text as desired.
6. Bring up the layer styles dialog and apply the Bevel and Emboss effect. Adjust the setting until its to your liking.
7. In the layers palette change the blend mode for the type layer to Hard Light.

Since all my distributed images will be at 600x400 or 400x600 (portrait), I’ve created two psd files that have this watermark available. When I want to publish an image, I just copy the layer into the image that I want to publish and done…