Steve, The iPhone is only less expensive than the Apple Watch when it's subsidized with a two year contract.Kinda bummed about the larger screen on the iPhone. Nothing really enticing here personally.
The Apple Watch looks very interesting. I'm glad they're using a dial for zooming, because as was pointed out, pinch to zoom would be maddening on such a small display. I don't like doing it horizontally (in portrait orientation) on the iPhone, so there's no way it would be very user-friendly on a display the size of a watch.
However, I have some usability concerns with the dial. Its functionality is contextual; it zooms in some circumstances and scrolls vertically in others. Scrolling vertically, as I imagine it, is probably more user-friendly with the dial than is swiping the small screen, so I'd imagine my intuition when I want to scroll would be to use the dial, but sometimes the dial's going to zoom, presumably in 2D interfaces like Maps and Photos. But in single image view in Photos, it would seem very intuitive to use the dial to go between photos since you are essentially going between photos in one dimension, but I'm pretty sure it's going to zoom. One might also just want to use it to scroll vertically in the full gallery itself, even though it allows for 2D scrolling. So you'll be forced to switch between two input methods for scrolling unless you just never use the dial for scrolling at all. I don't know how this could be handled better and it's not a huge deal, but it is something I thought about when watching the keynote. Maybe if it had a second dial this wouldn't be an issue.
My mind wants to turn the dial to scroll vertically here.
Nonetheless, it looks neat and useful. I might get one along with an iPhone when I get some income.