Can you try something for me? I think you may have found a bug.
IN templates/default/markallread.tpl
FIND THIS:
<form action="{ubb url="ubb=domarkallread"}">
REPLACE WITH:
<form method="post" action="{ubb url="ubb=domarkallread"}">
Test the button again (after doing a browser page refresh on the page), and see if that works for you now.
Thanks!