I think it's pretty obvious that Watson isn't a top order batsmen, he was only good as an opener when he was in insane form (Like Clarke is in at the moment) - Now that he's come back down to earth I think he should be at 5 or 6 to be honest.
For Sri Lanka Series:
Openers - Warner and Cowan (Possible replacements through form or injury: Hughes)
Top Order - Clarke and Khawaja (Possible replacements through form or injury: Doolan, Ferguson, Quiney)
Middle Order - Watson, M.Hussey, Wade (Possible replacements through form or injury: ?)
Lower Order - Siddle, Starc, Hilfenhaus, Lyon (Possible replacements through form or injury: Hastings, Johnson, Bird, Cutting)