WhisperingWind
(Do you think this is because running the windows 11 VM is activating the Metal direct display mode and bypassing processing since it's a fullscreen window?)
IMO your experience here is very strange to me. As I've never been able to get M1 macOS (or even Intel macOS for that matter!) to work with any external monitor that's fine on a known good setup
(an example of a known good setup for me is my current solution: Raspberry Pi 2011 Model B, 1st generation with acceleration turned off + the older dispmanx display driver + showing the same macOS or Windows desktop through VNC)
I have an M1 Air which should have the same GPU as your M1, but when displaying the same screenshot between both the Mac connected to a monitor, and the Raspberry Pi Gen 1 ---
the Mac creates extremely strange artifacts on all monitors I've connected it to, everything (in the same screenshot that looks fine when output from the Pi Gen 1) looks either extremely oversharpened or too blurry when output from the Mac. I notice additional color fringing and blue glows around larger objects. All photos seem to have some sort of contrast enhancement or antialiasing effect where smaller objects / AKA "objects in the background of the photo" look more blurry or smudged than they should.
This effect is definitely caused by the M1's GPU, or HDMI controller, or possibly the macOS window server (but at a stage after the plain, unprocessed framebuffer is rendered, meaning that it's not captured by a generic screenshot)
Because: The same photos, displayed on the same macOS desktop, but captured as a screenshot instead (or shown through VNC) and displayed on the Pi Gen 1 connected to the monitor (instead of from the Mac's HDMI output) look fine.
This remains true even with Stillcolor and the Force RGB EDID workaround.