Proper technique needed to nest a setWatch() within a separate setWatch()

Extend SPI

That would be the ideal, yes. I'm not sure Robin's up for that though since it requires a lot of hacking around in C.

Ok, I just tried this:

Espruino WiFi

// in
pinMode(B5, "input");
var d=1;
setWatch(function(e) {
  d=(d<<1)|e.data;
  if (d&256) {
    print("Got "+(d&255));
    d=1;
  }
},B3,{edge:"rising", data:B5, repeat: true});

MDBT42

var spi = SPI1;
spi.setup({mosi:D14,sck:D15});

spi.write([1,2,3,4]);

Get them grounded, connect B3->D15 and B5->D14 and it works perfectly.

So I'm not quite sure what's going on with your code.