Hi Kevin,

Word is designed so that, on screen, material in the page header or footer is shown as if there's a translucent screen over it. This doesn't affect the output, however.

As for the pixelation, you need to make sure the original image is scaled for output at least 200dpi - preferably 300dpi or more.

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Cheers,
Paul Edstein
[Fmr MS MVP - Word]

I suggest that using header and footer is a better way than using watermark, if you only need logos at the top and bottom. You can insert your image (ideally an emf vector image, made using a program such as Inkscape) into the header, and also text boxes if you need any text in your letterhead. This also works for the footer. Remember to change the text wrapping of your inserted images and text boxes to 'behind text', otherwise it is very difficult to move them where you want them.

As mentioned above, the image looks washed out on screen, but print preview shows the true output.