Ahhhahahahaha... Sometimes I even amaze myself!!!!
Watermarks in SFM are possible!!! (as material overlays)
Create a material... (2048X1024 is what I used.)
The material is pure black with your watermark image placed on the material where you want it (I used the bottom right hand corner.)
I'm not sure if this set is necessary, but I added a masking layer to the material (Pure black for the transparent area and pure white over the watermark)
Save the material as a VTF file with Alpha turned on.
Now create the VMT..
"$basetexture" "path to the VTF"
Open SFM and do your vid... Add a Clip to the overlay track. Select Material overlay.
Take the clip to the element viewer,
Material: Select the Material you created
Overlaycolor: Use the ALPHA slider (the bottom slider) to make the watermark as transparent or solid as you want it.
FullScreen: checked on
In the clip editor, Move and Extend the overlay to the time you want the watermark to appear.