'Just saw this on Deal Extreme:
 
ZGPAX S5 1.54" Touch Screen Dual Core Android 4.0 Smart Phone Watch w/ Camera / Wi-Fi - Black Grey
 
http://dx.com/p/zgpax-s5-1-54-touch-screen-dual-core-android-4-0-smart-phone-wat ch-w-camera-wi-fi-black-grey-277829
 
Basic Specs:
 
Android 4.0
MTK 6577 Dual Core (True dual core) Processor - 1GHz
1.54" 240x240 Capacitive Touchscreen
512M RAM
4G internal Storage
(1) Full size SIM
Micro SD/TF slot - Up to 32G
2MP front-facing camera (No other camera)
WiFi 802.11 b/g/n
Bluetooth (3.0)
GPS
Normal array of sensors, compass, etc.
MicroUSB port
 
 
The specifications on Deal Extreme say that it is Quadband GSM/GPRS only, but the MTK 6577 is capable of (limited) 3G, so there is hope.
 
According to the pictures, It has a custom launcher/homescreen for the small screen.
 
 
Look for more news here, and I will be creating a seperate forum for this exciting new Android Watch Phone.