How often should a watch be serviced?

That all depends on the kind and quality of the watch.  The
vast majority of the 'vintage' mechanical watches (Bulova,
Elgin, Hamilton, etc) that are only dust resistant may need
cleaning every one to three years if worn on a daily basis.  
These snap-back watches were
mildly dust proof (as they were
called) when they were new.  Now over the years wear & tear,
use & abuse, moisture, opening & closing, and well
life has
caused the caseback to become more loose, the collar on the
crown not seal out the dirt it once did, or the cement around
the crystal to loosen.  Remember; Grandpa probably only wore
his Bulova an special occasions, he didn't wear it on his
construction job busting up concrete!  That's why it has
survived to this day.  Don't expect it to hold up forever if you
abuse it today.

Now, the more modern 'water resistant' watches of today
(okay, 20-30 years ago), should be in much better shape
because of the gaskets that were meant to keep things out
provided it's been cared for properly!).  Service intervals will be
longer on these models because much of the dust and moisture
are kept out, expect three to five years (or more) on these
watches.  Keep in mind;
Just because a watch is well sealed doesn't
mean it will run forever!
 It still needs proper lubrication which
dries up or hardens over time.  Many of the high-grade Swiss
watches insist on service intervals of two to four years!
(depending on brand).  These fine watches are
able to run
much longer without service, so why so soon?  Simple, your
car will run much longer than 3,000 miles between oil changes
won't it?  I'll bet it will run over 10,000 miles or more!  
However, as the oil (in your watch or car) looses its ability to
lubricate it starts to cause
wear.  The longer the dirty oil stays
in place, the more
friction, the more wear takes place.  You may
boast that your watch has never been serviced it 20 or more
years, that only means that when it finally does stop many
parts may need to be replaced (
if they are still available!).