Video Watermarks Ruining Transitions

I watched a few videos on YouTube showing how to make and add a watermark to your videos. So . . . I made a watermark and added it to a video. I dragged the watermark image across the entire video but when I play it back the transitions are gone. Can you tell me how to fix this - other than deleting the watermark?

I don't know about iMovie '08. But in iMovie '11 unfortunately you cannot mix the Cutaway and Transitions. Cutaway will block the transition. So what you have to do is 'break' the Cutaway where the watermark is now at the transition point then put another one on the other side of the transition, like this:
Make sure to pull the cutaway a bit away from the edge of the clip beneath it, keep dragging until the transition turns bright white and isn't grayed out anymore.

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