At test level they weren't. He was picked to deliver a certain level of performance and he never did that.
The reality is he continued to get selected for what he might do rather than what he did do. The fact he consistently delivered what was expected in the shorter formats only served to perpetuate the hope that one day the matchwinning, explosive Shane Watson of limited overs cricket would reveal himself at test level.
I don't believe for a single second that based on test performances alone, there wasn't a better option than Watson during his career. I think it also has to be considered that it has been well established that Watson wasn't exactly the best or most popular teammate in the dressing rooms during his career, and I don't think you can get away with that at test level.
He'll be remembered as a gamebreaking matchwinner at ODI/T20 level, and a disappointment at test level, which is pretty accurate I'd say.
Who were the better test options over Watson? I think you'll struggle to find many.