Grammar
 

kono tokei wa takei desu. Is this the formal way of saying "this watch is expensive."?
How about : kono onna wa kichigai desu.

'kono tokei ha takai desu' is right
i dont know what kichigai means, my dictionary says it means madness? i've never heard anyone say it, but i'm not a really good listener.

Ｙｅｓ，　ｇｏｏｄ．　Ｓｏ　この時計は高いです。「 このとけいはたかいです。」　Ａｔ　ｓｔｏｒｅ，　ｗ ｉｔｈ　ｆｒｉｅｎｄ　ｄｉｓｃｕｓｓ　高いよね（ｅ ｘｐｅｎｓｉｖｅ！）　ｏｒ　ｏｎｌｙ　たかいっ！　 ｉｓ　ｇｏｏｄ　ｓａｙ．Ｉ　ｔｒｙ　ｓｔｏｒｅｍａ ｎ　ｎｏｔ　ｈｅａｒ　＾＾

yea a woman told me it means crazy.

just saying 女 to describe a woman instead of　女の人 is "direct" which is a nice way of saying rude.

"kono tokei wa takei desu." "kono onna wa kichigai desu."
These two sentences sound like they came from on of those "Learn to Speak Street Japanese" books with an added desu on the end.
Takei is slang for EXPENSIVE, while takai would be a more polite and normal way of saying expensive. The second sentence is "this female is crazy" which isn't polite to say either. I use female because there is some ambiguity in the sentence. If you know the person and they are standing right next to you can say kono hito wa... but to say kono onna wa... is fairly rude.

After all isn't it this way in any language??? In English you would never point to a woman and say "this woman"...