There isn't really anything AJAX about this, aside from the J. This is purely a javascript client-side watermark behavior.
One thing you may want to add is something that remembers what the original watermark value is. When the user enters the field then leaves it without entering anything, or clears it then leaves, you may want to restore the watermark. Due to the flexibility of the javascript model, it's easy to just add a property/field to the textbox itself to save the old value. You can then check in the onBlur handler if the value is empty, you restore the watermark.
-Peter
compiledthoughts.com