Why does Watson call Sherlock, 'Spock'?

Yes, he's certainly referencing Mr. Spock - everyone's favorite Vulcan science officer.

In the Star Trek TV show (and on film) Spock constantly struggled with his emotions due to his mixed blood, and sometimes had a hard time suppressing them. Watson is likening Sherlock's own 'emotional struggle' (albeit brief) to this classic character.

An ancestor of mine maintained that if you eliminate the impossible, whatever remains, however improbable, must be the solution.

Said by Spock in Star Trek VI: The Undiscovered Country , written among others by no other than Nicholas Meyer, who wrote The Seven Per-Cent Solution, which is regarded by many to be the best Sherlock Holmes novel not written by Doyle himself. So it is a clever nod to the popular culture by the contemporary TV show, which becomes a mindbinding Mobius strip, when you realize that the Spock character himself is in part based on original Sherlock Holmes, in a way House is: logical to a fault and incapable of experiencing basic human emotions.

In the sixth Star Trek movie, Spock quotes Sherlock Holmes' famous line "Once you've ruled out the impossible, whatever remains, however improbably, must be true." Of course, since the modern-day Sherlock couldn't be quoting himself, Watson identifies the quote as Spock's, and not Sir Arthur Conan Doyle's. I really liked this reference, particularly the way it messes with time...but in the new Sherlock, they're assuming that the original quote came from Star Trek.

Of course, the bits about struggling with emotions are rather Spock-ish, since Spock rarely shows his own emotions in the show.

Hope that helps!

Yes, he is. Recall that the TV Series is supposed to be modernized.

From Wikipedia: "Sherlock is a British television series that presents a contemporary update of Sir Arthur Conan Doyle's Sherlock Holmes detective stories."

Since it is contemporary, it is in a day in age in which Spock is very well known, so the comment makes perfect sense.

Spock is a character so famous for his lack of emotion and applying logic to even the most emotionally-weighted situations that TV Tropes has named this character archetype after him.

From that page (abbreviated slightly):

A character who will always think before acting, The Spock is an archetype that can be loosely summed up as the tendency to apply rules, reason and the greater good to all of his/her decisions. This character can exist by themselves, but more often, they will have a more emotional and humanistic counterpart to contrast their decisions.

The Spock's relationship with his crewmates/comrades is often tense, because this character type is willing and able to ruthlessly consider ethically troubling situations without batting an eye — especially situations where people might be ordered to die. While his counterpart The McCoy is interested in doing the right thing regardless of cost, The Spock is more interested in the end result. For him, everyone (including himself) is expendable and he has no problem treating people as such.

John calling Sherlock "Spock" is like when he calls him a "machine" - he's teasing and/or criticising him for his lack of emotion and upholding of reason and logic (in circumstances in which, in John's opinion, there are more important things than reason and logic).

The scene between Sherlock and John, where Sherlock is having an emotional break down in "Hounds of Baskerville", is similar to a scene in an episode of Star Trek called "Naked Time" where Spock has an emotional break down and confesses to feeling shame when he feels friendship towards Jim Kirk, his captain and best friend. In "Baskerville", Sherlock angrily tells John Watson, his best friend, that he has no friends. Both characters say that they have to control their feelings. And both break downs are caused by a drug like substance. Sherlock was reacting to the drug mist. Spock to a space disease that made one act intoxicated.

The character of Spock is similar in many ways to Arthur Conan Doyle's Sherlock Holmes, so I think the writers were borrowing back as a joke, and that's why John calls Sherlock "Spock" because he is acting like the famous Star Trek character. Sherlock and John, Spock and Jim, even the names are similar.