If we divorce the moral argument from the creative for a moment, I don't see why setting stories in the history of the Watchmen universe is any more creatively devoid than 'Young Anderson' for example.
To be clear, I don't really care about the project one way or another, and I certainly don't think the morality of it is at issue, within the context of the comics industry as it existed in 1986 and exists today (measured against some
actual sense of decency, it may well stink).
But for me the difference with Young Anderson, and SBT's Spiderman analogy, is that Watchmen was conceived and executed as a single piece of clockwork. There are no superfluous cogs or teeth, and no missing ones. Adding bits on is like saying 'Yeah, I like Michelangelo's
David fine, but wouldn't it look great if we got Damien Hirst to do
Goliath and stick it in the same room, sort of looming over him?'. Not saying that'd be wrong (okay, I probably am), but I certainly think it isn't necessary and can only detract from the original - get Hirst to go do his own David and Goliath somewhere else.
EDIT: I see Steven has said much the same and better.
EDIT EDIT: Maybe if they got Ron Mueck to do Goliath it'd work... hmmm.