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Just recording another case here...I bought a Thunderbolt Display, forgot to bring my M1 Mac to test it (used the other guys' Mac) and when I brought it home, lo and behold, no connection. Works with my wife's older MacBook Air (2015) totally fine, but not with my 2020 air. updated to 12.3.1, still nothing. :(
 
Fixed for me in 12.3!

I hadn’t realised this was a software issue and was expecting my Thunderbolt Display to die soon. I guess I won’t be needing that Studio Display anytime soon then (which is fine as really I’d want something with Pro Motion and OLED/mini LED HDR & black levels and am happy to wait).

Pretty amazing that Apple fixed this - there must still be plenty of Thunderbolt Display users in Cupertino.
 
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My son uses an M1 Mini with a 1920 x 1080 monitor just fine - and it ran my thunderbolt display just fine.
 
old thread but I did lodge a ticket on this issue and did have Apple respond that it was a bug and would be corrected in some release. Post that i replaced my 27in with an ASD so I'm not sure if it was ever fixed.
 
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