In my opinion, the smart watch should be considered a peripheral for the smart phone I already have in my pocket.
This means it won't need to be a high powered device. I agree with you that this is not practical at this time.
But, if I'm able to check notifications such as text messages, subject lines of received emails, and navigation commands from my GPS, I'd be happy. I should be able to change music tracks without pulling out my phone. It could display a grocery list.
Stop thinking of it as it's own computing device, and more as a display device with limited input capabilities, and I think it'll make a lot more sense.