Yeah as a loyal Apple customer, I'm incredibly disappointed in how they've handled your situation. I've personally never had a negative experience with AppleCare and I hope I never do. The sad part? Apple is actually #1 in customer service, there's no company who's products I would feel safe switching to. I know if my Mac or iPhone craps out on me, Apple is 15 minutes away and I can always have it serviced right away or get a replacement under warranty, can't say the same for any other brand. As horrible as your experience was, I can only hope it's not becoming the norm with Apple because as far as I'm concerned there really are no better options.
I wonder why Apple stores don't do on the spot watch replacements like they do with iPhones?
They don't carry any watches in store and they don't offer service in store because they are not capable of dissembling and reassembling. They are not even capable of flashing the chipset incase your Watch bricks on a software update. Also, there are a lot of models of watches to have to carry in addition to all the iPads, iPhones and iPods.