I have done this with water based markers. You are correct that you simply heat emboss the image by stamping in versamark, apply the embossing powder and heat it until it looks right and the embossing powder has fully melted.
Then, I have colored in the image with water based markers. When I am done, it is easy to wipe off any marker that is on the embossed portion with a paper towel. You could also color it in with watercolor paint or something like that.
Copics: Some people say they can color in the embossed image with copics (or other alcohol based markers like spectrum noir, sharpies...) but I have not had as much luck with that because a) sometimes the alcohol markers colors your embossed portion too and it won't come off, and b) sometimes the embossed portion has started to come off a tiny bit on the tip of the marker.
HTH.