When device reboots getting the Auto Preconfig warning message which reads " New Service Provides apps and settings will not work untll the phone is reset"
Please check if this works. Connect the bluetooth headset and open Galaxy Wearable app.Under Notifications menu, you will have an option to mute connected phone. If this option is enabled please disable and check if its working.
This post on Sammobile will answer your query. "That blinking white pixel is simply the proximity sensor doing its job, waiting for your ear/face to come close to the phone so it can turn off the display to prevent accidental touches."