The picture in the pocket watches....

I second this question. So mortimers sister just loved the tune and watch so much that she gave both her brother and lover and or husband the same one with her picture in each?

To answer the first part of your question, yes both watches are clearly shown to have the same picture of Mortimer's sister in them during the film. The two watches are not exactly the same size though, one is smaller than the other. Assuming it's a his and hers set, the smaller of the two would be for the woman. Mortimer has the smaller one, so Indio must have taken the watch that was for her boyfriend.

As for them both having the same picture inside, well we never see what photos, if any, were originally in the watches. We could assume that there was originally a photo of her boyfriend inside her watch (the one Mortimer now has). If you wanted to justify it being swapped out, it's not too much of a stretch to imagine that he could have gotten another print and replaced the picture of her boyfriend in his watch, to remind him of his dead sister, who was also the original owner. In those days people did not have their photo taken very often, in fact some people would have lived their entire lives without having had a single photo taken. So it could be that the original, full-size photo of Mortimer's sister that the watch photo was taken from was the only existing one of her.