I suggest uploading photos of lower res quality and with your watermark as you mentioned. Most photographers seem to think that is ok which I have spoken to as that is what they do on their own sites. And I guess it is really no different to that.
Unfortunately there is no easy way to stop the downloading at this point as its not part of the software we use.
I've also looked at some other sites around the world and if people are sharing/posting up photos they just make sure they are watermarked and not of the highest quality.
A decent watermark does the trick in my opinion if you are worried about it.
