I did reset the keychain. Turned it off in iCloud on the computer before I did it. Basically I shot myself in the head, because not only did it not resolve my "unlock computer with watch" problem, but now all my passwords were gone.
I called Apple Support and they told me that even if I turn off Keychain for the cloud in my iCloud preference pane, it still wipes the keychain in the cloud.
Tried to restore the keychain from my Time Machine backup, but the only way to do that was to restore the entire system.
Naah. Called my ISP for help getting into my email, and I'll just have passwords reset and sent to me. I'll recreate it.
Just a word of caution for anyone thinking of wiping their keychain to get this resolved. Unless there is a right way of doing it that it will work, you could wind up with an even bigger mess.