Hi there, DrJJBra.
It appears that you're having a problem unlocking your MacBook Pro on macOS Big Sur with your Apple Watch. Good job on the troubleshooting you've tried, and we're glad to help with this.
Unlock your Mac and approve requests with Apple Watch - Apple Support -- Just to make sure, review the information on this page of the macOS User Guide. Note that you cannot use your Apple Watch to unlock your Mac after starting, restarting, or if you logged out of your user account before your Mac goes to sleep.
Change the login password on Mac - Apple Support -- It has been discovered that the Auto Unlock feature supports the use of the following characters in your login password:
- Uppercase or lowercase letters A to Z
- Numbers 0 to 9
- Underscores
- Hyphens
- Periods
If you need to change your password, restart your Mac after you're done. See if you can unlock your Mac with your Apple Watch.
If you're still unable to unlock your Mac with your Apple Watch, put your Watch in Airplane mode, and turn off Bluetooth on your Mac as close to “at the same time” as you’re able. Disconnect any USB devices (except for a USB keyboard or Mouse). If you have any other Bluetooth devices nearby, remove them or put them in Airplane mode. See if you're able to unlock again.
Use Control Center on Apple Watch - Apple Support
Turn Bluetooth on or off on Mac - Apple Support
How to use safe mode on your Mac - Apple Support -- If you still are unable, restart your Mac in safe mode and see if it works, You can test by locking the screen of your Mac.
Get back to us when you're able with the results.
Take care.