Yeah, the Apple Watch doesn't really need to get thinner, so I think this will go towards the battery. It's already a couple mm thinner than my old SS watch, which compared to many other watches was already on the slimmer side.
I think if they make it too thin, they risk having issues with the digital crown accidentally being pushed in when flexing a hand backwards. When I work in the yard, I wear a sport band with a protective case and work gloves and it often activates Siri. I think it acts like a wedge between my hand and the crown because it lowers the distance between the bottom of the crown and the surface being pushed against. Making it thinner would lower that threshold down so that the top of the crown is near the skin, so it would be pushed easier. Does that make sense? I feel like I'm over explaining it but it's kinda difficult to visualize it if you haven't had it happen yourself.
A 35% increase in battery would probably get me through two days, but ironically—at least, given my comments on iPhone battery life—I'd prefer if they would put more of this extra power budget into making the device perform faster. The Watch is the one Apple device that really needs a speed boost to be more functional. That budget could be put towards more aggressive fetching of data so it's instantly available in frequently used apps, smoother operation in animations when sliding around through things like glances (or swiping between apps or whatever in watchOS 3), faster load times, etc.
Charging every other day just isn't a big deal to me. I feel like it's not that important until we can get week long charging, so I just know every Sunday night I should charge my Watch before the work week starts. I know we need small increments to get there, but I think it's a long way off. If that new lithium tech takes off next year, that could be a great start to getting there quicker, however, especially if they can keep the performance at a similarly smooth level going forward and just shrink the chip sizes down, making more room for battery and a more energy-efficient operation.