grafobox,
Thank you for these additional details.
At this point, we suggest temporarily removing the mailbox from your Apple Watch to check if that has a positive impact on freeing up storage space on your watch. Then, if this allows you more space to complete the watchOS update, please perform the update next.
To temporarily disable the mailbox from your watch, open the Watch app on your companion iPhone > Mail > Include Mail > tap the email account from this list, which should remove the check mark next to its name. This will remove the entire mailbox from your watch, but it will not delete any mail or remove it from your companion iPhone.
Once updated, try following the same path to re-enable to mailbox on your Apple Watch.
Let us know how this goes.