The City Watch card states "You may evade the city watch instead of attacking them..." Does this mean "Anyone" can evade them, or, only characters with an ability (special or otherwise) or spell that allows them to evade enemies?

I think this card allows players to attack the guards if they want to. But the guards will not attack you unless you attack them.

Indeed, like the Battle Hulk in the Dungeon, you don't have to attack them. Woe betide you if you do and lose though...