Apologies, the M1 Apple Silicon appears to not provide the same options as an Intel Mac. Apple only allows you to turn off the Battery Optimization, which is the charging to 80% then trickle to 100% per your daily usage patterns. The battery health management which extends longevity is not user configurable and cannot be disabled. But from your description, is certainly still engaged under the hood.
Battery powered devices are not intended to be left plugged in all the time. All modern lithium batteries have these behavioral characteristics. The battery chemistry does not like to be kept at 100% all the time and will actually age the battery faster as previously explained. Taking an educated guess, Apple learned from "Battery Gate" on the iPhones and implemented much more advanced battery optimization and longevity management features since macOS Big Sur and now Monterey. Apple has apparently decided to enforce the battery health management with their Apple Silicon systems which are based on the iPhone A# CPU SoC designs.
Though Apple doesn't seem to document the precise behavioral code logic in depth. It does seem to be quite complex and based on usage patterns, temperature, number of charge cycles and the age of the battery. If you leave the Mac plugged in it over a lengthy period of time, it will begin to discharge and recharge the battery back to 100%. If you keep leaving it plugged in all the time, it will likely put charging on hold and discharge below 80% and depending on the age of the battery that amount may vary. When the battery ages after years of use it will begin to have difficulty supplying enough current when it is low on charge. At that point, Apple should alert the user and begin throttling the CPU/GPU, dim the display, etc. to keep the Mac from sudden power loss.
The good news is that on the M1 MacBook Air light duty usage results in about 8 hours of battery life or more if you close the lid periodically, dim the display down from max brightness and don't stress the CPU/GPU for long periods of time. The average users are claiming it is lasting more than a day. Power users who are pushing its limits are obtaining about 7.5 hours before they need to plug it in. This is remarkable when you compare it to older Macs and any other PCs on the market. The 13" M1 MacBook Pro reports even more battery life (up to 10 or 12 hours), which isn't surprising since it has more battery cells. The more power hungry M1 Pro / M1 Max battery life on the 14" & 16" MacBook Pros are averaging 14-15 hours with light duty usage and closer to 8 hours with extreme usage. The larger case provides more room for more battery cells than the M1 MacBook Air which explains the longer battery life.
Bottom line, try using the M1 MacBook Air the way it was intended to be used. Charge it up overnight, unplug it, use it on battery, plug it in during the day to boost the charge a bit as needed then unplug it and keep using it on battery. Close the lid if you can when not in use. Don't run the display brightness at full and take advantage of the automatic brightness feature. Plug it in overnight. Eventually it will learn your usage pattern and charge to 80% then trickle charge to 100% an hour before you normally wake it up at the start of your day. Exercise that battery the way it was designed to be used and the problems will likely go away.
