I do believe I might have found a workaround... What I do is:
- Turn of Bluetooth on my phone, so that is not interfering with the watch (just in case).
- Turn on Wifi on my watch to get a data connection (I normally keep this disabled to save power).
- Turn the offline mode OFF in the Spotify app (to go online).
- Start playing a playlist or album in the Spotify app (this adds the playlist or album to the Recently played list in the app).
- Go to the Recently played list in the Spotify app.
- Go into the playlist or album in the Recently played list.
- Tap on the Download button/switch.
This succesfully downloads the playlist or album on my watch and after downloading I am able to turn off Wifi again, turn Offline mode ON in the Spotify app and still play my downloaded albums and playlists.
Hope this helps while we all wait for Spotify to some day fix their buggy app.