Definitely their best yet, by far. Yeah, it could be the so-called "new album syndrome" but I'm pretty sure it isn't. While almost all previous Opeth albums could be described as fantastic releases within one specific musical genre (progressive death metal, I guess), I see Watershed as a true masterpiece of progressive music, period.
Watershed might not necessarily include better songs than other Opeth releases, but it transcends the boundaries of a certain genre and that makes it a better album in an historical context to me.
Watershed
Ghost Reveries
Damnation
Blackwater Park
Still Life
Deliverance
My Arms, Your Hearse
Morningrise
Orchid
My two cents, of course.