I'm trying to have the watermark NOT be applied when viewing them in the browser/gallery, and have the watermark ONLY applied when the user clicks on the photo for the full-sized download ...

is this possible?

The watermark on mine is being applied to the photos in the gallery .....

The present implementation does not distinguish the place the image is displayed. Your only choice is to change the theme to use customsizedimage (from memory, check the docs.) for displaying the image page image. It has a paramter called $thumb. Set this to true and the image will not be watermarked.

will this be implemented in the future? I have no idea where to start to implement that in code thanks for the tip though, might help others

Take a look here http://www.zenphoto.org/documentation/zenphoto/_template-functions.php.html#functionprintCustomSizedImage

Replace ``with that function on your theme's image.php.