Refer to chapter 28 - "Interval Timer Core" of the "embedded peripherals ip user guide (https://www.altera.com/literature/ug/ug_embedded_ip.pdf)". This explains, pretty well, this IP and using it as a watchdog.
Critically, it states "
to prevent an indefinite resetrequest pulse, you are required to connect the resetrequest signal back to the reset input of the timer." So, yes. You're doing the right thing.
As for a 'soft' reset - this is a soft reset. Simplistically, a reset that doesn't rely on an external hardware event (e.g. power cycle, reset button) is a soft reset. So, providing your Nios restarts when the watchdog goes off, you've proved your soft reset works.
Cheers,
Alex