You'll have to excuse me if these were discussed before…
AW upgrades?
CPU: what for? To play games with a billion polygons while roasting the battery? Not necessary.
Battery: Would be nice. A different battery tech allowing super-quick charging and greater storage capacity in the same size would be a real breakthrough.
Screen: pixel density is fine. Brightness could be better. But, changes to both would probably require more power. If reflectance can be improved without a coating, they'd have a winner.
Camera: No. Dumb idea. Privacy concerns make it socially awkward (see Samsung's stalker-ish ad for its Gear camera). It takes up space, unless they use a tiny module that sacrifices other features. The screen is too small to clearly see what you're shooting (is the shot blurry?). You can't edit the shot on the watch, so you'll need the phone. Sharing the pic from the watch would be a pain in the ass, so you'd need the phone.
Sensors: what do you think you need? There's already a multi-axis accelerometer and optical HR. Is there a non-invasive way to measure blood glucose? Should it measure HR via electrical impulses even though it's nowhere near the heart? How much more battery power will additional sensors require?
GPS: Meh. Eats battery, not good for much besides boasting. IMO.
Strap connection: No. Keep it the same. Compared with what the rest of the watch world does, it's fantastic.
Cellular radio: Big sticking point. Okay, say you want it. Add the radio chips and antenna. It needs another phone number (cellular iPads have their own numbers, too, remember?) and a phone bill. It needs more battery power. If you're out and about without your phone, how will you add things like contact info, or follow email links? Some things are just done better on a larger device, so you're going to have your phone with you anyway.
So, what part of the hardware really needs an "upgrade"?