Issue is resolved and the app is working on the watch. Restarted iPhone and Watch - app still did not work. Waited around 1/2 an hour and tried it again and now it works. No other settings were changed - just a bit of a lag in enabling the app on the watch - weird.

same issue with MBP M1. It asks for the computer password 2 times to install (usually it is only once) and then it fails. Multiple reboots and still the same issue.