Setting Opacity = "0" in x:Name="Border" is what worked under my "<Window.Resources":
<Style TargetType="{x:Type xctk:WatermarkTextBox}">
<Setter Property="Template" Value="{DynamicResource WatermarkTextBox1}"/>
</Style>
<ControlTemplate x:Key="WatermarkTextBox1" TargetType="{x:Type xctk:WatermarkTextBox}">
<Grid>
<Border x:Name="Border" BorderBrush="{TemplateBinding BorderBrush}" BorderThickness="{TemplateBinding BorderThickness}" Background="{TemplateBinding Background}" CornerRadius="1" Opacity="0"/>
<Border x:Name="MouseOverVisual" BorderThickness="{TemplateBinding BorderThickness}" CornerRadius="1" Opacity="0">
<Border.BorderBrush>
<LinearGradientBrush EndPoint="0,1" StartPoint="0,0">
<GradientStop Color="#FF5794BF" Offset="0.05"/>
<GradientStop Color="#FFB7D5EA" Offset="0.07"/>
<GradientStop Color="#FFC7E2F1" Offset="1"/>
</LinearGradientBrush>
</Border.BorderBrush>
</Border>
<Border x:Name="FocusVisual" BorderThickness="{TemplateBinding BorderThickness}" CornerRadius="1" Opacity="0">
<Border.BorderBrush>
<LinearGradientBrush EndPoint="0,1" StartPoint="0,0">
<GradientStop Color="#FF3D7BAD" Offset="0.05"/>
<GradientStop Color="#FFA4C9E3" Offset="0.07"/>
<GradientStop Color="#FFB7D9ED" Offset="1"/>
</LinearGradientBrush>
</Border.BorderBrush>
</Border>
<ScrollViewer x:Name="PART_ContentHost" SnapsToDevicePixels="{TemplateBinding SnapsToDevicePixels}"/>
<ContentPresenter x:Name="PART_WatermarkHost" ContentTemplate="{TemplateBinding WatermarkTemplate}" Content="{TemplateBinding Watermark}" HorizontalAlignment="{TemplateBinding HorizontalContentAlignment}" IsHitTestVisible="False" Margin="{TemplateBinding Padding}" Visibility="Collapsed" VerticalAlignment="{TemplateBinding VerticalContentAlignment}"/>
</Grid>
<ControlTemplate.Triggers>
<MultiTrigger>
<MultiTrigger.Conditions>
<Condition Property="IsFocused" Value="False"/>
<Condition Property="Text" Value=""/>
</MultiTrigger.Conditions>
<Setter Property="Visibility" TargetName="PART_WatermarkHost" Value="Visible"/>
</MultiTrigger>
<Trigger Property="IsMouseOver" Value="True">
<Setter Property="Opacity" TargetName="MouseOverVisual" Value="1"/>
</Trigger>
<Trigger Property="IsFocused" Value="True">
<Setter Property="Opacity" TargetName="FocusVisual" Value="1"/>
</Trigger>
<Trigger Property="IsEnabled" Value="False">
<Setter Property="BorderBrush" TargetName="Border" Value="#FFADB2B5"/>
<Setter Property="Background" TargetName="Border" Value="#FFF4F4F4"/>
<Setter Property="Foreground" Value="{DynamicResource {x:Static SystemColors.GrayTextBrushKey}}"/>
<!--<Setter Property="Opacity" TargetName="Border" Value="0.5"/>-->
</Trigger>
</ControlTemplate.Triggers>
</ControlTemplate>