The dream of the watch phone will never die. LG resurrected it at CES this year with their prototype watch phone, which they were careful to say is not coming to market - at least not in this form. The prototype is a 4-ounce GSM phone with a 1.5-inch, high res screen, which you navigate using a scroll bar and two action buttons at the bottom of the phone.
You can either talk into the watch and listen to it by holding it up to your ear, or by using a Bluetooth headset - that latter option would probably be less embarrassing.
The phone even supports SMS text messaging - though entering text messages (and, for that matter, phone numbers) can be a little awkward as you have to scroll through the alphabet or the list of digits using the scroll bar. Presumably voice commands would help in a retail product, much as it does on Nokia's keypadless 7380 phone.