Im looking at http://en.wikipedia.org/wiki/Bluetooth#Bluetooth_2.0 and see that it can do ~2.1Mb/s

and H.264 can do 352×288@30.0 at 960kb/s for level 1.3 of HiP video.

Would it be possible to stream video of this quality smoothly to a bluetooth watch/screen.

and leave enough of the channel open for input from the watch?

In short, why aren't we streaming video over bluetooth?