The same monitor is absolutely fine on a 2019 Macbook Pro.
If you use BetterDummy, it creates a ‘fake’ display to mirror to. The result is beautifully clear display on the 5K2K.
This is the crux of the issue. M1 macs can absolutely do nice 1.25 scaling on a 5120*2160 display to give crisp text in the 140dpi range but they disable it.
That is the issue IMHO.