It has been a while since I’ve read Watts, but I suspect you’re misreading his attitude here. In essence the buddhist (particularly the Zen Buddhist) attitude toward reality is very similar to the materialist view which you endorse. That is, that reality exists, and our opinions about it should be recognized as illusory. This can be confused for nihilism or despair, but really is distinct. Take the universe as it is, and experience it directly, without allowing your expectations of how it should be to affect that experience.
Perhaps he doesn’t share this view (though given his background it’s hard to believe he wouldn’t) although without further context it is difficult to judge from just that quote.
Certainly you can argue about reincarnation and divinity and other aspects of Watts philosophy that you find irrational or dogmatic. But on this individual case you bring up, I suspect he shares your view, and I think you (OP) are projecting these views based on assuming that someone recognizing human life is natural in the same way as vegetable life must consider that a bad thing. But to quote the inscrutable philosophy behind this, that is “perfect in its suchness”.
I recall reading (One of Tyler Cowen’s books, I think) that happiness is highly correlated with capacity for self-deception. In this case, positive / negative events would have little impact, but not necessarily because people accepted them, but more because the human brain is a highly efficient self-deception machine.
Similarly, a tendency toward depression correlated with an ability to make more realistic predictions about one’s life. So I think it may in fact be a particular aspect of human psychology that encourages self-deception and responds negatively to reality.
None of this is to say that these effects can’t be reduced or eliminated through various mental techniques, but I don’t think it’s sufficient to just assert it as cultural.