I have it working without a problem using both the apple iPods and a BlueAnt bluetooth headset. I had set up the headphones on my iPhone first. Then I used the Bluetooth link on the settings app on the watch to make sure the iPods were connected to the watch. At times it gets confusing when I switch from using the headset with my phone and then to the watch, but you can generally choose on the watch. I have the cellular version of the watch, so I can play any of my music on the watch by either downloading music to the watch or simply asking Siri to play anthing from the Apple music service.
I was having some trouble last week with Nike+ and the iPods after switching from the iPhone 7+ to the iPhone X, so I simply called the Apple support number. Within a matter of minutes, they had all of my issues resolved, and both Nike and my iPods are working just fine now. If I were you, I'd give them a call or use the Chat feature on support.
I'm still waiting for the ability to listen to my Audible books on the watch, but Audible says that they are looking into it!