I stumbled upon your question regarding the mosaic feature in qgis, the thing is I'm also using Quantum and this is my first encounter with GIS this semester, so if you can please help me with a technical question. For the watershed analysis I know the steps as a concept, like how I should first get the flow direction, then flow accumulation then the stream network etc.. but technically I don't know how to locate these functions in Quantum, if you have any knowledge about that matter can you please share it with me?
Have you worked in the GRASS environment in QGIS before? If you want to perform a watershed analysis this is the place you will need to start. The second part of this tutorial on creating heatmaps is useful for learning how to work in GRASS: http://qgis.spatialthoughts.com/2012/07/tutorial-making-heatmaps-using-qgis-and.html?showComment=1349708404807#c2011177687204116089 This is how I taught myself to work in GRASS, but perhaps other members have better suggestions for you. Once you are familiar with GRASS, you will be able to extract watersheds from a DEM.