You keep focusing on the thousand$$, What about the watch that people will actually buy in great numbers? What is Apple's track record on upgradability? They solder the RAM on a $3200 laptop, gimped the iPad with 1 GB of RAM and you honestly think they are going to provide an upgrade path for a $349 watch? I'd be beyond amazed if that happened.
No I think the "service" will be expensive enough that it will end up applying to only the more expensive watches. But I'm also not convinced we'll get a new watch every year. Apple is not going to stick new sensors in it unless they're highly reliable. And I'm doubtful we'll have highly reliable new sensors on the market every year.