How do you unpair an Apple watch you no longer have?

Have you read this? Location symbol can be different colours. I believe grey is off but used in the past 24 hours. As for the iCloud you can use the back section to restore your phone. It gives different options to which back up you can use from different dates. Ta

https://support.apple.com/en-gb/HT207092

It appears your new iPhone found and loaded the configuration with Apple Watch from your old backup. Unfortunately this uncommon scenario was never included in the design and I can’t see any way to remove the watch from the backup or from the phone except, as you noted, to erase the phone and reload as a new phone without using the backup. I agree that would be using a sledgehammer to crack a nut.

The storage occupied by the Watch App will be trivial compared with available storage on the XS so it is unlikely to cause any problems. At worst it is a visual annoyance. If I had the same problem I would simply move (drag) the unwanted app to one of the less used pages of my home screen then ignore it. Sorry, I don’t think there is a better solution.

At this stage I think a larger hammer is required. Your new XS brings an entitlement top phone support direct from Apple’s paid support staff, hit (link) Contact Apple Support and pick your preferred method of contact. I usually use “Apple calls you back” to get a real human on the phone within a few minutes, but remember you might want to use a different phone if it is available so you can talk to Support and work on the XS at the same time.

Go to watch app on iPhone. And unpair from there also delete data. Ta.

Right see. Can’t help any further. Ta