Here’s the way I got it to work.

Change the shell script to:

#!/bin/bash
# Get the PID of loginwindow.app
PID=`ps -ax | grep loginwindow.app | grep -v grep | awk '{print $1}'`
# Change to a Screenwatcher directory in your home directory
cd /Users/patrick/Pictures/Screenwatcher
# Make a directory based on the date
mkdir -p `date "+%Y-%m-%d"`
# Capture in the context of the loginwindow.app so it works on Leopard
launchctl bsexec $PID screencapture -C `date "+%Y-%m-%d"`/`date "+%H.%M"`.png

Type this in your Terminal if you already have gone through the above tutorial:

launchctl unload ~/Library/LaunchAgents/

sudo cp launchctl unload ~/Library/LaunchAgents/ /Library/LaunchAgents/

sudo launchctl load /Library/LaunchAgents/

That worked for me. I think the problem lies in the new permission system on Leopard.