Further to my previous post, I've now worked out that this ThinkGeek Bluetooth Watch (as DennyHayes quite rightly points out) like most others, simply connects to most phones as a headset with the speakerphone disabled.
What I have found however, is that this watch is a cheaper copy of the Sony Ericsson MBW-150 music watch (without the music functionality buttons down the left hand side).
Interestingly though, the way to get the caller id to work is to download the address book from your phone to the watch - but this only works with some phones. I have managed to get it working with a couple of BlackBerry phones. When I found out this watch was a copy of the Sony Ericsson MBW-150, I went out and tested every Sony Ericsson mobile phone I could get my hands on.
There is a list of compatible phones on the Sony Ericsson website at:
http://www.sonyericsson.com/cws/products/accessories/compatiblephones/mbw-150mus icedition?cc=us&lc=en. I have only tested about 5 of these, but I can tell these all work (including the MMS/SMS function.
More importantly, however, if you can get hold of one of these Sony Ericssons, you can connect it to the watch, download your address book, and then re-pair the watch with your iPhone. That done, the Caller ID will work with your iPhone.