After being away from the computer for most of the discussion, I sitll have to throw large paragraphs at things, so:
Regarding the difference in expectations (and sophistication?) of the current reader vs. the late 19th-century one, maybe this is the reason why as far as I saw it in Israel, the Sherlock Holmes books are being sold as children's books? As in, the first detective stories the kids may read, before they move on to the more sophisticated ones?
Not that there are many in Hebrew, anyway. It seems like the variety in English is many times larger than in Hebrew, and also that the books themselves are treated in a more legitimate way (for example, not considered 'stuff for kids'). There are several mystery writers in Hebrew, in the last few years (I've learned from Jesse that at least one of them was even translated into English, Batya Gur), but from the way I see you guys talk about this, we are a long way to go from what you describe.
I read all the Sherlock Holmes I could put my hands on, as a kid. If I didn't read all of them, then very nearly so. One of the stories I most remembered was "Red Headed". Probably because of the imagination in the scheme in order to perform a robbery, probably because, even as a kid, I was thinking "come on, there must be somehting behind it if they're making him just copy the encyclopedia! They should have given him something more substantial to do, so that he wouldn't suspect them". Probably, I have to admit, because I was wondering about the entries that he copied (yes, I was a strange girl, I enjoyed leafing through encyclopedias. I can't help it now). Reading it now, it still seems as lovely and fun idea as ever.
From "Scandal in Bohemia", which was the first place I ever encountered this place (and, um, got it confused with "bohema". I wasn't just a strange girl, I was also a bit dumb), I mostly remembered the king coming to Holmes with a mask, and Holmes exposing his real identity and making it unnecessary. The second thing that remained in my mind was Holmes' trick, with making Irene Adler check the place in which the photograph was hidden. I was impressed with the logic of the notion that a person - not necessarily a woman, IMHO - would immediately glance to the place that most occupies their mind. Only in my memory, it was but a glance in a direction, nothing so far as actually opening the safe. Interesting how the mind plays tricks.
I think that Watson is there in a similar way that a TA has to be there for a brilliant professor. Usually the most brilliant people have no way of explaining their thoughts - intuition as well as the more 'orderly' ones - in a way that is accessible to anybody who doesn't live in their own heads (of course, there are exceptions to this, but in my experience the majority behaves this way). Sometimes the brilliant person can't even explain to him/her own self how the leap of thought was done, or they need to explain their thoughts proccesses to somebody who checks and asks them on every step of the way in order to clear the path they just jumped over.
So Watson plays that part, even though Holmes seems rather capable of explaining his own deductions and conclusions. Also, Watson usually gives the description of things, the "what we see", and from there Holmes can go further and describe the little details that Watson did not include in his description, the "what he deduced", so it's like an introduction and a research done in collaboration.
I don't think I've ever seen a Holmes movie, so obviously I can't comment on that, but I think it's unjust to portray Watson as an idiot. Clearly, he's not. He doesn't behave like that in the stories, and it would contradict Holmes' character to not only tolerate but be so friendly with a person without thinking power.
I didn't see it in either of those stories, but IIRC, in many of the other stories, in which there is more directly a crime (and a corpse), the idiots are presented to be the policemen. They never listen to what Holmes has to say, prefer their first impression of things regardless of the facts, and simply jump head on without giving the details any thought. When compared to them, Watson's willingness to listen, to follow the lines of thoughts that Holmes presents, to challenge him with questions until he's satisfied, but wuthout any hesitation to leave a conclusion once it proves false or contradicting one of the facts - all that makes him, is not clever by his own rights and IQ, at least a person who is not insisting on keeping his mistakes just because they were his. The ability to learn is a big thing.
I also like the way, after each time that Holmes explains his chain-of-thought, Watson seems to think that it's practically easy. In math or physics it's often this way: you can't possibly see a way out of a complicated equation, but once somebody points you in the right direction and shows you how to take it, you can't understand how you didn't see it in the first place. A bit like those optical illusions when after you see the picture or whatever it is, you can't not-see it anymore.