I don't think either A. or B. is realistic in the long run, both because Apple will obviously want to make the future versions of the watch as thin as possible which might make it difficult to fit the new hardware in the old case (imagine if in a few years they decide to use a bigger curved screen for instance) and also because Apple is not really famous for supporting what they consider to be obsolete products.
I think people who'd buy a gold iWatch are not looking for a family heirloom to give to their great-grandchildren, they're looking for something "bling" to show off how rich they are. I think it's for the petrodollar market, basically. I'm sure you can already find diamond encrusted iphones made by third parties already...
With B, it doesn't need to fit into the old case size. You'd get a new case with new watch internals, the old one would be melted down, for an upgrade fee.
I think people who'd buy a gold iWatch are not looking for a family heirloom to give to their great-grandchildren, they're looking for something "bling" to show off how rich they are. I think it's for the petrodollar market, basically. I'm sure you can already find diamond encrusted iphones made by third parties already...