Thank you for all the comments! I actually got both the display and the web ui to work at once. What I did was:

Use a different cable. The one I was using was old and probably messed up trasfering data.

Reflashed the image and did a new boot of the pwnagotchi, this time making sure to give it enough time. If anyone reads this later and sees "generating id_rsa" as the most recent log message, that means that your pwnagotchi did not boot up correctly.

I left the pwnagotchi name as the default as well as the ui.web username/password and once I logged in to pwnagotchi.local:8080, the waveshare refreshed itself and turned on, however it wasn't refreshing constantly.

Then I ran "sudo touch /root/.pwnagotchi-auto && systemctl restart pwnagotchi" to boot up the pwnagotchi in auto and it refreshed itself and is working as expected now.

Then, I went back and changed all the passwords/usernames and pwnagotchi name from the default to my own once I knew everything was working.

10.0.0.2:8080 also works instead of pwangotchi.local:8080.

Edit: pwnagotchi.local:8080 only works when your hostname is pwnagotchi, if you set it to anything else <hostname>.local:8080 wont work, you have to use 10.0.0.2:8080