Using a part of a photo picture as a shape?

[handrawn]

'bitmap tracer' is the name for the auto trace in xara, should find it on the utilities menu

not sure how the background eraser works in ver 10, but in general the problem with removal tools is in removing the colour you don't want but leaving the same colour where you do want it eg: the white in your case - remove outside leave inside the watch

presumably you want the watch as a vector not just cut the bitmap background out?

the online 'vector magic' site is probably as good as it gets doing it automatically

plugins that work - eg knockout - are not free - and I'm out of touch as whether they [still] work with xara -= and you still need to vectorise after if that's what you want