I had a similar issue on current Jessie with iwatch 0.2.2-3. After installation and configuration iwatch does not start:
apt-get install iwatch set "START_DAEMON=true" in /etc/default/iwatch but systemctl start iwatch.service or /etc/init.d/iwatch start do not start the iwatch daemon. No error, no warning, simply nothing. After a reboot everything is OK. Something needs to be restarted after installation; i did not find out what. But it has nothing to do with CONFIG_FILE, this is the correct syntax.
