Yes I’m having this problem too. Just bought a refurbished iPhone 13 mini, which arrived yesterday. I erased everything, then used quick start to transfer everything from my old phone. I then updated to the latest iOS 17. Worked fine on my old SE for years, running iOS 16.1 I think. I don’t want the wallpaper I’ve had for years, time to update with a photo of my son, now I have a bigger 5.4” screen. It looked like everything was working nicely, I mean it won’t let me either customise or delete my old generic image wallpaper, but okay I made a new one and another for my Lock Screen.
Then as you say, sleep focus came on and now there’s just black wallpaper on my Lock Screen. And my Home Screen reverted to the one from before the one I didn’t want. In fact sleep mode hasn’t been working properly since I updated iOS on my old phone to 16.1 from memory, I know it was one starting with 16 anyway. It does not switch off in the mornings, as my sleep schedule tells it to.
I did find a possible solution I need to work through. I discovered when I went into sleep focus settings (… menu) I could select my new wallpaper for sleep mode. But then when I tried to select it from the wallpaper screen it put my phone straight into sleep focus. Possibly I need to make a different set of wallpapers for sleep mode, and keep the set I made just for normal mode. I don’t know. It just feels like iOS got broken at 16 and now they’re having trouble fixing it. They really did a good sell on iOS 17 but it still doesn’t deliver.
EDIT: black wallpaper again on my Lock Screen as it’s just gone into sleep mode. I did just go back into it and I saw my actual wallpaper flash up briefly but then it was gone again. So it’s still in there somewhere.