You didn't tell what is connected to your MacBook on the other TB3/USB4 port it has. It may be that the sum of the bandwith requirements of all devices connected to your TB3/USB4 port exceed a threshhold. According to the spec, both ports should support up to 40 Gbit/s, but I also noticed that very often that works on paper only.

It may as well be that your cable to the monitor does not support TB3, i.e. it does not support the increased bandwith in comparison with USB 3.1 Gen2 which is 10 Gbit/s only. And the LG display does support 5K on TB3 only, on USB 3.1 Gen2 it is limited to 4K. However, if you bought the LG display from Apple a TB3 cable is included. This cable should work. But such a cable can be broken. If it is most probably the shielding is broken which means that external signals may interfere with the signals running on the cable. Running 40 Gbit/s signals on an external cable has high demands for shielding.

Cables that support TB3 have a flash sign on each USB-C connector. Otherwise they look exactly like ordinary USB-C cables.

So, before looking at the OS there are a number of possible hardware issues to check. And I would bet that if those issues did not hit you, it is the M1 GPU and not the OS, that has unresolved issues. There are reported issues with Mac mini M1s and 4k displays as well. That would be the worst case but It would allow you to return your Macbook to Apple for full compensation, as it fails to operate according to the promised specs.