I haven't seen the DVD yet, which I hear is a little different, but I did see the movie when it played at the San Diego Film Festival last year. There was a lot of buzz about it that weekend, and large audiences turned out to see it. I personally thought it was weird but lots of fun. I laughed out loud in places and was really scared toward the end. The acting was for the most excellent, the music was great, and the story was funny. There are some great scenes: the scene at the beach, the artist trying to con the main character into letting her live in the watermelon-painted trailer, the crazy step sister. I give this a definite thumbs up!
The Watermelon is a very well-acted film with an odd script and very interesting characters. I kept thinking of "Little Miss Sunshine" while I was watching it, but that was just me, I don't think that The Watermelon is a deliberate copy of that film. All of the acting is good, some of it is great. It looks fantastic, the photography is beautiful. It doesn't look like your typical low-budget movie.