Does watch unlock now work natively with pam_tid? I know as of at least a few months ago it would only work if you could use touch ID, i.e. when the laptop was open. If it was docked, it would fall back to password auth.
I wrote a patcher that changed this behavior, it patched pam_tid directly on your system and just updates the API Apple calls to allow unlocking with watch-only when touch ID is unavailable:
https://github.com/inickt/pam_wtid
Was a fun reverse engineering experience and wrote up some more info in the README.