Scott, thank you for continuing to post. I appreciate having a real conversation with the people I do business with, and I'm sure many others here feel the same. I just have a few comments.
I, for one, don't mind the idea of the watermark as long as it doesn't obscure my ability to read & print the text. Personally, I think you should try having a watermark that actually looks cool, like having "Irda Ranger's Player's Handbook" printed page headers or "From the Library of Irda Ranger" in a cool seal on the inside cover. It would be a "feature" for people who honestly want to collect your books, but also discourage posting them to the p2p networks.
I would however like to cast my vote against any form of "DRM" that doesn't allow reading the book on an open and supported format, disconnected from the internet. I have several very strong reasons for this:
1. I boot Windows, Max OS X and Ubuntu on different machines. I am posting this post here from my Ubuntu desktop, but usually DM at the table from my MacBook. I also have PDF's on my blackberry. Proprietary solutions never have this kind of wide support, and I fear that if WotC ever goes bankrupt, or decides to stop supporting their format, that I won't be able to read my book anymore. It will be revealed that my "purchase" was really a "rental", and every investment I have made in reliance thereof (both in time, money and emotional energy) will have been for naught. A corporate decision-maker could "zero out" my account with D&D with the flick of his pen.
Just so we're clear, I will NEVER allow myself to be in that position. Which means that if you go with a DRM solution, I simply will never participate in your market.
2. I don't think it's really possible to keep your books off of Limewire, no matter what you do. So any kind of DRM you impose will simply be a cost to your 10,000,000 legit customers worldwide, and no more than a speedbump to the 10 pirates out there. That may be hard to accept, as an author, but I think WotC (and this goes for ALL media companies) just needs to come to terms with this and admit that they're only selling two things: the paper version of the book, and the online experience at DDI.
This is the same reason Madonna has signed with a concert promoter, not a record label. The record labels are not adapting to the new market, where the valuable product is the "experience" and the "extras" that come with the CD. The CD itself is worthless, despite all the hard work that went into making it.
But even if you don't agree with me, I'm sure this point has been argued at the office. I'm really just adding my vote to "come play by the new rules."
Hmmm.
I see two problems with this right off.
1. The re-sale market. I know that's not really your concern, but it does lower the value of the initial purchase to the purchaser, which might lower sales. When I'm on Amazon I often think to myself "Well, this costs $17, but if I don't like it I can sell it on E*bay for $10, so I'm only really risking $7 here." and I buy it. If I can't resell, I'm risking the full $17. At the margin, this will effect sales.
2. I'm married. A lot of players are. As you know, your customers aren't all highschool geeks in their Mom's basement.

Not anymore, anyway.

But seriously, my wife and I share all of our books. Insisting that we buy a book for each of us doubles the cost of this hobby for us, which will cut into our purchases
a lot. Your customers who play with their kids are in even a worse situation.
A model you might want to look at would be Apple's OS upgrade discs, which are 100% cost for one copy, or 140% for a "family pack" good for up to five computers in the same household.
Hmm. I'm not sure how much using the word "sharing" even makes sense in a digital context, but I only have two points on this:
1. DM's should be able to have a table rule that doesn't require everyone in the group having bought the book. Restricting rule use to the lowest common denominator will kill book sales, since it lowers the incentive of the DM to get a new book.
2. Don't do other stuff that pisses off your customers.
I think those of both common sense things that you already know though, so just try to keep them in mind and things should work out.
Be well, Scott. Thanks for posting.