Human perceived brightness is something like a logarithmic function of the power used to make the light. When you see most of the watch face go almost dark and the important bits being "half brightness", that could be operating at <5% of the normal power. The new fancy display only needs to be refreshed once per second which lets all the switching electronics go to sleep. What that all adds up to is the always on time taking very little power and turning it off will not gain you much run time.
I'd definitely appreciate being able to change it as a setting.
Is there a hardware reason that couldn't have been implemented?
Nope they're just taking advantage of the OLED screen which only turns on the pixels it needs to, I doubt you could double the battery life by turning off always on... you might get 2-3 more hours out of it.
2-3 hours is still a lot when you're only getting 18, though.
I don't think you can just add the hours like that. It's in a low power mode but the screen's still on. Probably uses very minimal battery to have the always-on display.