i am using 1.3.5. on Ubuntu LTS 12.04 x64.
I am also getting the error where the downloads stop attaching to seeders.
I also have the above stated error about "watermark too low" in my logs.

anything else i can look for or try?

i have setup the deluge daemon on a ubuntu 12.04 box. It seems to stall when downloading some torrents. Do i need to turn on debug logging at the daemon? like this: deluged -L debug I ended up changing the /etc/init.d/deluged-daemon script to add debuging: line 23 changed to DAEMON1_ARGS="-d -L...

I just followed the process on this page.
http://torguard.net/checkmytorrentipaddress.php
Add the torrent to your queue and just leave it there. it will report an ip address under status.