Watto was no idiot, but he didn't seem too fond of work. His shop was slow (notice no other customers during the entire time they were in his shop and no indication Watto was in a hurry to get anything done) and he wasn't the most highly motivated of shopkeepers. He was pretty lax - notice he didn't have a problem with Anakin leaving early that day. But, on the other hand, he had no problem with making an easy buck. (Or an easy credit, as the case may be.)
Watto was benefiting from Anakin racing and knew about the pod. It was also free advertising -- if the winner of the Boonta Eve pod race got all his parts from Watto's shop and built it himself, then people will come to the shop, expecting quality parts and a good mechanic. He also had faith in Anakin and felt he could make a lot pile of cash quickly by betting on him - especially since everyone was sure a human could not win the race.
As for C-3PO it's never stated clearly, but we don't know how long Anakin was working on him or what condition he came in. It's very likely C-3PO ended up in Watto's shop as part of a trade or Watto found him in a ship he purchased and wasn't interested in the droid.
Think of when insurance looks at a car and declares it a total wreck, even when it could be rebuilt, because rebuilding costs more than buying a new one. If C-3PO arrived at Watto's shop in bad enough shape to be considered totalled, he'd have no problem giving the wrecked droid to Anakin. Then, over months, Anakin could have traded or wheedled for the parts he needed from Watto.
If the droid were damaged to the point of being considered totalled, Watto may also have been planning on letting Anakin finish rebuilding him, then taking him back and selling him.
There's also the possibility that Watto knew he was better off with a happy slave and didn't want to invest the time in rebuilding him and felt that letting Anakin rebuild him would keep him happy.