[msrenee]

I could see saying "she'd had to have been watched" or "they had to have been watching her". Both sound very natural to my ear. Observed to me feels more like they're looking at every minute detail with some emotional distance and maybe a feeling of something novel. A scientist observes a rare bug walking on a leaf. A psychiatrist observes his patients' behaviors. It's maybe a more scientific and heavily detail-oriented form of watching. But a would-be abductor would be watching his victim. He may observe their habits, but that's while he's watching them. It's a very fine line and I'm sure that other native speakers would disagree. But for me, "observe" would feel out of place here.

[bombcar]

“Had to have been kidding” is a relatively common phrase.

[msrenee]

Very common and feels very natural to me. "You have to be kidding me" "He had to have been kidding" "He had to have been kidding me" or the rougher "he had to have been fucking with me" and "he must have been fucking with me" although "must have", of course, implies more certainty than "had to have". What a wonderfully subtle and complex language we have.

"to be ing", "was ing", and "will be *ing" if I remember correctly, are actually thought to be an early borrowing of celtic grammar. Not much celtic anything was adopted into English, but there's a possibility that this sentence structure may be one of the few contributions of the celtic languages that were displaced by germanic Anglo-Saxon languages that eventually formed English.