Any reason why a serial connection might interfere with a setWatch for a contact on other ports?

I guess you're setting Serial up somewhere else? Do you think you could post up a little bit of example code that shows the problem by itself?

D28 is the default UART TX pin at boot (if D29 (default UART RX) is pulled high when power is applied), so I wonder whether somehow it's got stuck as the UART TX pin, so every time you try and send data to the UART, it's sending data to that pin, which is triggering your setWatch?