If I was him and the choice was there, I'd have gone for the Watford job. Still in the Championship, you're guaranteed a nice little pay off within six months when they inevitably sack you and it's a basket case club, so he'd get another job after it anyway.
Leicester might work but a lot of pressure and a lot of scar tissue.
He won't get away with an equivalent result to the 0-4 kicking we got at Sunderland - Leicester fans won't be standing for that.