Seeing the same error "(waiting for first unlock)" on an iPhone 12 mini, with an Apple Watch Series 7. Phone is connected via USB-C cable directly to the Mac, no hub.
Xcode 14.2, iOS 16.2, watchOS 9.2
This is my first attempt at watchOS development (years of Xcode experience in macOS/iOS) and I've tried all the workarounds, restarted everything. Not sure where to go next - kind of a bummer.