One thing that I noticed when I was playing around with items on my pets was that you can completely cover up the http://www.chickensmoothie.com watermark.
My first instinct was that the system wasn't very "smart" and that the layering of things would just be in the order that you picked it up in.
Then I tried to put the halo on top of the reindeer plushie and the plushie was immediately pulled in front of the halo.
I think that the watermark should appear above all items. Two ways of doing this came to mind, one of them easier then the other.
1. You could have the watermark pulled to the top in front of every item. It would work in the same way the items are layered now. The user would not be able to move it and it would just appear in front of everything.
2. Make the watermark an item that can be moved around the image. It would always be on the top layer, but that way if someone wanted to shift it down a bit because of how they were arranging their items they could. It would have to be done so that it couldn't be removed from the image... I don't know much about coding so I'm not sure how possible that is. Just another idea.