It can, if you load them via itunes onto your iPhone and then from the iPhone to the watch.

At least, I am pretty sure I did that on my Series 8 the last time I was using it.

I think there's a TestFlight beta for a foobar2000 watchOS app. I don't have a relevant apple watch, so I can't testify. The foobar2000 ios app is truly excellent though. My only real complaint is the lack of a carplay app.

It sort of can. For example you can load spotify playlists to it, podcasts over podcast app etc. The interface to achieve this is quite cumbersome, though.

Those things are not mp3s.

This drove me insane for a while trying to figure out how to get long (1h+ mp3s) downloaded to the watch for offline playback. The solution is to use an app called iCatcher!

Works reliably for me