Hi extricated, I had the same concern.
But figured since I didn't have that much stuff (i haven't loaded that many apps yet) I'd go for it.
a. it *was* like starting over again with a brand new watch (in terms of the very first steps of pairing, setting a PIN, etc. at first
but then it
b. it restored my original settings after I put in my dot mac account ID and password from a back up
everything - data, apps, settings - is restored and better yet, now works.
(this situation happened all of the time with the early versions of the ipod, iphone, etc. -- now the progress bar is a circle rather than a straight line. But it's a déja vu!)
both steps took several minutes. (I didn't time it).