I was tracing the code through CommonLogic.vb and found another interesting thing. The variable bmPhoto was defined with a format that doesn't have support for an Alpha layer. Since bmPhoto is the Bitmap on which the image with its watermark is assembled this would prevent the outputted image from having a transparent background.
I therefore changed the bmPhoto variable definition in AddWatermark from:
Code:
Dim bmPhoto As Bitmap = New Bitmap(phWidth, phHeight, PixelFormat.Format24bppRgb)
to:
Code:
Dim bmPhoto As Bitmap = New Bitmap(phWidth, phHeight, PixelFormat.Format32bppArgb)
Now my image is showing up with the proper transparency, but it seems to be showing two watermarks.