I am in the process of creating new images for my products to use on my website.  Are there any advantages or disadvantages of watermarking each image?  Is there an SEO impact good or bad?  I am aware that filename and Alt tags are important, but am unsure if google dislikes watermarked images.

My website is e-commerce and used to rank for all industry related keywords like buy widgets, cheap widgets, online widgets in top10. And suddenly my website was hacked and to resolve this hacking issue i have re-write all my dynamic urls into static pages after that new pages are indexed and ranking well. But after few months i have notice few changes in keywords ranking going down. But suddenly after Google Algo (EMD/Panda) update on Sept 27 i lost all my positions. And then according to Google guidelines i have worked on over optimization and low quality pages. I have removed all tones of low quality pages from SERP and simultaneously worked on url re-write. But i have notice small percent of changes in keyword positions like when Google Algo (EMD/Panda) is rolled out i lost my keyword positions from 1st page to 200 page and after working on over optimization and low quality pages the keywords are came back to 100 pages. Recently i have notice that my web pages ranking for irrelevant keywords. For example, let's say i used to rank for home page for these keywords; buy widgets, cheap widgets, online widgets but now am ranking for different inner pages say (guide pages). Can any one suggest me whats wrong..