I did all the wipes and reinstall as Garmin Support suggested. Meanwhile also updated to 7.10 - no success at all. Garmin have asked me to send the watch to them, but I hesitate, as I know Poland reality and I anticipate that it will take weeks to get watch back - and I use it daily.
Meanwhile I have found another topic on this forum which is describing EXACTLY same symptoms. So to be specific - my WiFi version says 655.35 - which FF.FF in hex - seems wrong, it should be 2.50. I have tried the method described there -so I have tried to put the GUP2196.GCD file (from latest beta) manually into GARMIN\RemoteSW - but no sucess - after reboot the WiFi version stays 655.35. Also - spotted that once connected to Garmin Express the gup2196.gcd appears in GARMIN\RemoteSW - but does not seems to be installed.
Any ideas how to force watch to update/fix the WiFi driver - which I suspect is the root cause of the problems?
I have decided to attempt force watch to install Wifi driver by installing full beta (7.52). I have performed all the steps described here
https://www8.garmin.com/support/download_details.jsp?id=14331#Instruct
and 7.52 was successfully installed. During installation it even listed (in Polish, I'm using Polish language on watch) that it install OS updates, sensor hub update, ANT/BLE, GPS - but nothing on WiFi.
As anticipated - WiFi version remained 655.35 and WiFi connectivity is not working. Any ideas how to force WiFi firmware update?