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i think the thematic integrity of that film is bolstered when Pablo receives the watch even though Dusty is not dead. it's symbolic of a new awakening, a new life, for Dusty--nay, for all three 'friends', in the vein of "we had to kill that village in order to save it" or Christian life-through-death motifs.
 
I disagree. When the question is first posed, Dusty does not in fact answer with the affirmative. The request for the watch is actually the central queston of the film, and the entire movie between when it is asked for and when it is given (his response to the original question) is a narrative metaphor for Dusty's thought process and weighing of pros and cons when deciding how to answer this impossibly important question, which in reality is not a request for the watch as a material object, but rather for the paternal love which such a gesture represents.
 
Good point. I also enjoy how Pablo's Oedipal fantasies were actualized through El Guapo, re: the attempted rape of his mother figure (Carmen) and El Guapo's aggression towards Dusty. That sort of multi-level conflict and projection game is prevalent throughout (see: Rodrigo), which is why I love that film.