does this update also enable precision finding from the watch? would this start working with the previous generation of airtags as well (currently you can use precision finding from your iphone, but not from the watch)
According the MacRumors, yes but they cant confirm if its only for the new AirTags yet:
"watchOS 26.2.1 is also coming, and it expands Precision Finding to the Apple Watch Series 9 and later, and Apple Watch Ultra 2 and later. We have not yet confirmed if this is for the new AirTag only or also works with the original model."
From the linked article:
> For the first time, users can use Precision Finding on Apple Watch Series 9 or later, or Apple Watch Ultra 2 or later, to find their AirTag, bringing a powerful experience to the wrist.