Quite a response on this, with lots of photographers out there I can see why it so important to do this. The best place I have ever seen do this is istockphoto.com, which uses different source images depending on the size.
Just putting your watermark is not enough. Lets be honest who has the time to go looking for all our photos that have been ripped off. Truth is we don't. My advices is put the watermark with copyright information on the top layer and make it visible, if this is something you are concerned with.
The point is detour theft from happening by making it time consuming to change it back to something they could use.
Also the web photos are at 72 dpi, which means they look like crap when printed. That in its self is some protection for your photos.