Studio Display will not wake from sleep.

Disable Sleep, it’s unnecessary on later Macs, all pain, no gain. To disable, set your Energy Saver settings to as shown: 

Separately, avoid manual sleep, use screen lock instead or let the display switch off/auto-lock on timer. For long or overnight absences, shut.

Having the same issue. M1 MacBook Air with the lid closed, connected to a Studio Display, Magic Keyboard, and Magic Trackpad. If I put the computer to sleep or it goes to sleep automatically, I can wake it from the keyboard and trackpad within the first few minutes. If I come back after a while, the keyboard and trackpad don't wake the computer and I have to unplug the display from the computer and plug it back in.

Not a huge deal, but kind of annoying. I mean, that behavior would be unacceptable for a desktop computer, so I don't see why it's okay for a laptop. And disabling sleep seems like a pretty extreme solution.

As already mentioned, Sleep is n/a to later Macs. See if disabling fixes the problem, and if it does, you can then decide if you want to stick with the “pretty extreme” solution or stay with the “unacceptable” problem.

You're welcome. File a report first, several other complaints, maybe it'll get fixed with firmware. All the best.