Hi Guys,
my previous solution worked for a week, and then the problem returned.
This time, I gave myself 3 weeks, and so far, everything works just fine.
Check 2.4GHz networks in your neighborhood.
The problem was the old 2.4GHz router in the garage.
I read on another forum that 2.4GHz WiFi can interfere with Bluetooth cards in M1 Macs.
On that old TpLink, the "Transmit Power" was set to "High". The moment I changed that setting to Middle, everything started working just fine.
I was very rarely connected to that network as I usually use 5GHz in my office.
I still have access to that 2.4 network from my office (two concrete walls away), but the Bluetooth issues have stopped.
So, for those of you whose router caused the trouble, there is a simple fix.
For those that the issue is created by your neighbor's WiFi in residential buildings - Good Luck - I hope you have understanding and tech savvy neighbors.