Hello gibsonbk -
it looks like the image you used to Replace with was also watermarked. You would need to use Replace with an image that did not contain a watermark as the image is just exchanged for the one that was already there to use the same URL so it continues to show on eBay. However, the replacement image would need to be one that was not already watermarked.
As noted when using the watermark tool within Auctiva, the change to the image is permanent, so you would need to use a copy of the image backed up prior to watermarking or have a new similar image to Replace with.