Personally I'm with perjr on this one, mainly because I really don't like watermarks (personal preference of course). It's because of this that I don't watermark my own images, plus the fact that my images are already copyright, and in NZ there is no registration requirement to receive damages. Also I participate in a group on Flickr that requires that you not watermark your images that are used in projects (note: I am perfectly happy with that requirement, I'm familiar with the site and aware of how my images are being used in that context). Between these things plus the ease with which you can remove the less distracting watermarks, I don't watermark my images.
The steps that I do take are: restricting sizes on Flickr, including a copyright notice in the exif, marking my photos "All rights reserved" on Flickr, and keeping the original NEF files in order to show that they are actually mine. May not be 100% effective from keeping people from stealing my stuff, but I do what makes me happy with it
