Additionally, this is an Xcode 15.1 regression, it works fine on Xcode 15.0.1.
rpassis
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No a solution but a workaround... Open the bundleURL parent path as shown in the error message and make a copy of your Debug-watchsimulator folder, renaming it to Debug-watchos, then build again. I filed this as FB13440925
This is still an issue on Xcode 13.1 with the latest Monterey (12.1 beta 4 21C5045a) at the time of this writing so no, unfortunately it is still not fixed.