It's not about making the phone obsolete, it's about making the watch more useful.
I've read the entire thread, and I'm simply disputing that this would make the watch more 'useful', because a watch is not really useful as a smart device on its own. Its screen is too small to digest more than even bite-sized information. You would be back at a dumbphone level of useage to a large extent or maybe even worse, because at least on dumbphones you could type messages reasonably efficiently on the hardware keypad using T9 for example, whereas you'd reasonably have to rely on dictation on a watch, and that's not always possible (in public, or maybe you have an odd dialect, speech impediment, unsupported native tongue, whatever.)
No real, genuine usefulness is gained by putting the phone parts into the watch, other than maybe for those few, odd people who just want a phone and not much else, and don't mind talking into their wrists when they speak on it. In just about every other situation we're either at status quo or worse with regards to today's implementation where a phone is a phone and a watch is a watch (and an ipod is an ipod, and headsets are headsets - just for completeness' sake.

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I don't think too many people would want just a phone today, and I don't think too many people would prefer having to buy several companion devices to gain back what they already have today, even if they already own a phone today, and a watch, and a headset too, because today the phone is the main, important device. You can manage without the watch or your headset. If you forget your headset at home and your watch-phone runs out of juice when you're out and about, well... You could always play Limbo on your iPod, right? That's about all you could do. Or listen poorly to music through the iPod's terrible built-in speaker.
It's a more fragile, fiddlier and decidedly not-better setup than today's. I don't see any credible advantages really...