Xcode 15.4 beta 1 and WatchOS 10.5 betas do not fix.

Not resolved on this machine with watchOS 10.4, iOS 17.4.1, Xcode 15.3, macOS 14.4. Watch was originally in run destinations list but removed, along with three iOS devices (including the paired iPhone), while attempting to resolve connection issues with all. iOS connection issues resolved by temporarily disabling VPN - see TN3158. Watch no longer appears as candidate in run destinations management window (after manually removing in preparation to re-add). Next beta releases of Xcode and OSs are uncharacteristically slow appearing - presume Apple is scrambling to fix what is not a small problem. @eskimo has several threads communicating problem, but no mention of the Watch connection issue - suspect it is related but its own issue. TestFlight appears the best workaround until this is resolved.

Multiple versions of Xcode can coexist. Xcode 14.3.1 probably runs fine under Sonoma - have you tried? You will need to set the active version of Xcode using xcode-select -s /path/to/active/Xcode/Contents/Developer https://github.com/XcodesOrg/xcodes is a handy tool to download and unpack Xcode versions more quickly, and provides a GUI to activate the desired version.