Yes the screen leaves a watermark, but a small blast of baby powder will get rid of them. Just hold the screen protector ABOVE the baby powder and squeeze the bottle, causing a small puff of powder to rise up into the film.
No, there is no decrease in picture quality.
do you have to apply more pressure then usual on the touch screen and is there any lag present?
I have one on my 3GS as well and it works just fine with no problems what so ever on screen sensitivity through the membrane.
This baby powder trick. Is it done on the inside of the case before you put your iPhone in or afterwards on the OUTSIDE of the film?
You don't blast the baby powder. It should be so light that you might not even see the powder in the air. It is so small amount of powder that there is no way any damage could happen.instead of potentially harming your iphone by putting baby powder on it, put the power support anti glare on it and you will no longer have watermark.