I think this might be an example of Ive's lack of experience in UX versus industrial design is showing. Not saying he doesn't know UX but it isn't his primary mode of operation. Or they simply didn't have time to do a circular UI.
I'm a big believer that the best smart watches will be round. A circle is more aesthetically pleasing than a rectangle. More importantly it has better ergonomics and you could do things like rotate the watch face according to hand position.
Lots of content looks really well when encapsulated by a circle since it looks more "organic". Photos, faces, maps, time. It's a little bit worse for chunks of text however but most snippets displayed like a SMS should be pretty short.
There's also a huge opportunity to use a rotatable bezel as tactile complement to a touch screen, making zooming, and scrolling easier. Being excellent for things like "dial selectors" and preventing smudges and being all around easier to find, grip and manipulate than the screen or a crown. Having invented the scroll wheel for the iPod for nearly the exact same reasons one would think Apple would be wise to this fact.
So what about the claim that it should be rectangle because "a huge function is lists". I think this simple is lack of imagination on the UX part. You have to think of the main purposes for a watch, as a complement but not replacement for a phone.
I actually don't see many scenarios where you'd want to browse through large lists or wall of texts on your watch. In most cases you want to view small nuggets of information and do some basic manipulation. In many cases I think "scrolling" could be replaced by for instance simply switching the whole circle content and having some indicator in the perimeter.
I suspect however the reason that both Android and Apple is going primary the rectangular route is that it does however require more imagination and radically different UI's than a phone, and time weren't on their side to do that quite yet.
I wouldn't be surprised if most if not all smartwatches in the future are circular