Yeah, I've already done it all. Forced restart creates more free space, but not enough for what it is asking for. The series 3 watch only has 5 GB of RAM to start with so best case is you've got about 2.2 GB free. It used to be able to run updates of all sizes with that, but not any longer. The 7.4 update was a little more than 600 MG and the error message says I need 3 GB free to run it. The Apple Support says just unpair the watch, pair as new, run the update, unpair for a second time, pair again only with the restore from backup this time. It works and it is horrible because it takes forever.
The issue is the update is so inefficiently coded that it requires five times as much free space as the size of the update in order to run. The Series 3 watch is still a product being sold by Apple for a low cost entry point meaning that there is a strategic decision to keep it whereas the 4 and 5 are gone from Apple's store. If they want to keep selling it, I think they have to suck it up and write better code that fits within it's limited RAM. I was ready to buy a Series 6 until I saw they are still selling the 3 and then I was just really irritated.