AirPods Pro 2 with Apple Watch 5 and iPhone XS

Having the cellular function in your watch but not enabled is not going to be a problem.

It is interesting that you can make outgoing calls OK, but there is an audio issue (only on the incoming audio) when you answer a call. That seems to suggest 2 possible places to look. (a) Some other process (music??) has taken control of the audio, and is refusing to yield and allow the phone app to take control

-OR-

(b) the audio is not getting sent to the AirPods from either your iPhone or the Apple Watch. There is some scope for confusion here, really depending which device has control of the AirPods and where you answer the incoming call. However, getting your outgoing voice into the call suggests there is some kind of glitch.

I suggest a simple test to see of it gives any clues. With an incoming call,

. Spin the Digital Crown to see if you have simply been hit by a saved low volume setting.

. Look on your iPhone's display, you should see some kind of Audio button which allows you to select between iPhone, Speakerphone, AirPods, maybe the car audio... (I'm not joking, but that should explain which one I'm talking about). Hit the button and take the call to iPhone or speaker, then if AirPods are in the options repeat and try to send it back to the AirPods. (If AirPods are not in the options, see what you can do from your Watch screen.

. Answer an incoming call without the AirPods in your ears then fit the AirPods. With a bit of luck the call should transfer automatically (If not then check your settings)

. Start by rebooting your iPhone and Apple Watch, unlock then try a test call before you allow any music or other app to take control of the AirPods. If that works you probably need to identify which app is refusing to allow the phone to take control.

Good luck!

I have no problems with my hardware, XS Max, AirPods Pro which have worked with Apple Watch Series 3 and then Series 7. So, not a perfect match to your hardware but pretty close. I also have the car hands free unit on the XS bluetooth list, and a Petzl head lamp with BT functions.

If you had all your hardware with you it should have been possible to demonstrate the problem to the Apple Support techs, and they should have been able to fix it or escalate to next level.

You mention incoming calls have the problem but no mention of outgoing calls. What happens if you originate an outgoing call?

You say all your software versions are fully updated and I suspect you have done the Reboot-Everything during your tests. That seems to leave a few possible things to try before you make another visit to the Genius Bar

A full Reset on the AirPods. How to reset your AirPods and AirPods Pro - Apple Support

Unpair and erase your Apple Watch then pair and setup again. (time consuming but it has a good chance)

Back to the Genius Bar, in person, with all your devices so you can demo the problem.

I'm very happy we found the solution for this. It's only subjective, but I think some apps have their own audio levels and I suspect some apps might have different sound levels for different output devices so Bluetooth, Speakerphone, and phone-to-ear might all have independent levels. I'm not testing that guess tonight but at least that's the way it seems when I have been meddling with things.

I think you will find the Watch is working rather like a remote control for the phone app on your iPhone. If you are playing music (Apple Music app) you can see the iPhone's audio gain level changing as you turn the crown on the watch. I have also found the (phone) audio level really low on the car hands free even with the speakers up at max, then found I can use the watch to turn up the level which the iPhone delivers to the hands free and infotainment - and it is displayed on the watch screen as a little vertical bar near the crown.