Microsoft's probably waiting to see what Apple does... I'm sure putting a 'micro-smartphone on the wrist' was an idea, but like Android Wear, was deemed too geeky or limited for a mainstream market.
I suspect Microsoft (or at least Myerson's team) is trying to develop an "OS" that could fit on exceptionally small and low-powered hardware. But the main challenge on that front might be figuring out exactly what one ought to put on such a system without going overboard (like Android Wear).
The ideal smartwatch, in my opinion, would be something that's light, small and stylish that gives me the information I actually need all the time. A boarding pass or navigation data is great, but travel is still an occasional or infrequent event. On the other hand, basic notifications (e.g. do I have texts, social network updates, emails, calls, etc) are frequent events, and to display such info, how much hardware do you really need?
I suspect Microsoft's thinking on the latter perspective, i.e. pushing what is essentially an updated Pebble (and supplemented by a much more powerful fitness and health band for those who need it). But they're probably holding back to see what Apple does, so as to ensure that they're en-route with the mainstream.
But if I were Microsoft, I'd consider developing a watch that is relatively basic, i.e. show me the # of texts, calls, emails, messaging texts (WhatsApp, FB msgr, etc). Offer a $150 Lumia-esque device in different colours and focused on durability, and a $500 set of premium ones (2 for men and 2 for women) in partnership with well established watchmakers.