Ed,
After reading the law from the Coast Guard, IA (Previous Owner) and IL (You), I'd say you are completely legal in putting them where the previous owner had them, as long as they contrast in color like he did, and meet the requirements (3", Block, etc...). Be careful on "custom" letters and numbers. They seldom actually meet the requirements completely. I purchased a custom set from a company that made some beautiful looking two-tone metallic purple and dark silver registration numbers for my black / purple / silver Cajun boat. They looked awesome (to me). To the Coast Guard guy that issued me my first and only citation - not so much. He said they were "too dark" (they were), and didn't contrast "enough" (they really didn't), and they really didn't meet the description of "block" (they didn't... kinda - they were "italic" block). Up close - they looked AWESOME. From about 30 yards away, you couldn't read them for nothing - even with the silver pinstripe outline. I pulled them off and stuck on ugly contrasting numbers so he would leave me alone.
Jamie,
If you run across the right warden or other official, you might run into some issues. TN law:
The vessel's number must be painted on or permanently attached to each side of the forward half of the vessel (the bow), and no other number may be displayed there. Numbers are to read left to right, be in plain vertical block characters, be of a color contrasting with the background, be distinctly visible and legible, and be not less than 3 inches in height. The letters must be separated from the numbers by a dash (-) or by a space the size of one letter. The validation decal must be placed on each side of the bow immediately preceding or following the Tennessee identification number.
I'd be concerned with the "distinctly visible and legible" part. I can't even read your registration numbers from the picture you posted. Looks like TN 744(?) (??). They are contrasting with the background, but they look hard to read. Maybe they are easier to read in person than in that picture. In your case, I would have put them above the rub rail. Just my opinion though... and I'm no authority. It's your boat.
All the best,
Glenn