Under Privacy & Security / Microphone, Messages is not an option.
Enable Dictation is set ON in both the Settings/ General /Keyboard and the Watch App.
On the watch, they have replaced the microphone with a keyboard in the Messages app. If I want to type a reply to a message, I will use my iPhone, where I can actually type. The entire Watch keyboard is the width of 4 keys on the iPhone. I can't type on that.
This is one of the stupidest updates I have seen in a long time.
I believe I did find where this is, but it is not intuitive.
Now, instead of clicking iMessage to reply (on the Watch), you click the "+", then Audio.
Is Apple taking after Microsoft now. "Let's just move things around to mess with our customers, and throw useless things on here."