Similar problems with my M1 air. The Dell monitor I had connected in a weird color mode YCbCr which make the screen look washed out and everything was blurry with 1440p. Then I found out about the no 2 external monitors problem after I had already bought it. Ended up buying a LG 4K ultrafine which works great and using this to drive my 2nd vertical 1080p:
https://www.hypershop.com/products/hyperdrive-dual-4k-hdmi-1...