Hi dread_pr,
Thanks for posting in Apple Support Communities. You've tried some great troubleshooting so far. Are you able to unpair your Apple Watch? Doing that and then updating from your Apple Watch may allow you to complete the setup. Start with the following guidance from Unpair and erase your Apple Watch - Apple Support.
"How to unpair and erase your Apple Watch if you have your iPhone
- Keep your Apple Watch and iPhone close together as you unpair them.
- Open the Apple Watch app on your iPhone.
- Go to the My Watch tab and tap All Watches.
- Tap the info button
next to the watch that you want to unpair. - Tap Unpair Apple Watch.
- Tap Unpair [your Apple Watch name].
- For GPS + Cellular models, choose whether to keep or remove your cellular plan.
- If you want to pair your Apple Watch and iPhone again, keep your plan.
- If you don't want to pair your Apple Watch and iPhone again, remove your plan. If you aren't going to pair with a different watch or iPhone, you might need to contact your carrier to cancel your cellular subscription.
8. Type your Apple ID password to disable Activation Lock, then tap Unpair."
Then, update from your Apple Watch using the steps from Update your Apple Watch - Apple Support.
"Update directly on your Apple Watch
If your Apple Watch has watchOS 6 or later, you can install updates without your iPhone:
- Make sure that your watch is connected to Wi-Fi.
- On your watch, open the Settings app.
- Tap General > Software Update.
- Tap Install if a software update is available, then follow the onscreen instructions."
If you encounter any issues along the way, at which point do you have issues and what happens?
All the best.