Ms Watcho's remains were found at the bottom of a cliff at Kangaroo Point in Brisbane in September 2018, but no one has been charged over here death.
The 36-year-old mother of 10 last accessed her bank account in November 2017 after being released from prison on parole a few days prior.
Anne Mickelo told an inquest on Wednesday that she spent time with Ms Watcho between her release from jail and when she went missing.
She said Ms Watcho was upset because she believed her partner had been sleeping around while she was in jail and the couple had been arguing.
Ms Watcho was known to couch surf and sleep rough, and had been staying at an apartment in Kangaroo Point with partner Sam Sobczak, the inquest was told on Monday.
Two other men lived in the unit, Paul Maclay and Dallas Bandman.
When she saw stories of the discovery of the remains in the news, Ms Mickelo told the court she had seen the same bag featured in the coverage in a Kangaroo Point apartment where Dallas lived.
On Monday, the inquest was told that Mr Maclay directed police to the location of Ms Watcho's remains in September 2018.
All three men are expected to give evidence during the five-day inquest in Brisbane Magistrates Court.
Most of Ms Watcho's body was found in a sports bag but her lower legs and arms were found nearby.
Forensic pathologist Andrew Reid on Monday told the hearing that it would have taken a degree of skill to separate Ms Watcho's remains in the manner they were found.
It wasn't done "randomly or recklessly", and the lower limbs were dissected at the knees and elbows as opposed to being "chopped off", Dr Reid said.
There had been an open missing persons investigation prior to the discovery of the body after Ms Watcho's brothers, from Cherbourg, reported her missing in February 2018.
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