Apple engineers acknowledge Sidecar Reference Mode bug!
It's only taken me six months, three dozen phone-calls, two factory resets, and a trip to the Apple Store to get the ball rolling with this issue...
But I finally got recognition from Engineers at Apple that there is a bug resulting in poor image quality when using an M1 iPad Pro in Reference Mode as a Sidecar Display on an Apple Silicone Mac.
Sidecar uses HEVC (H.265) encoding to ensure low latency, so some artefacting is to be expected. But the severe blocking, banding, ringing, etc. artefacts visible when using Sidecar in Reference Mode is utterly unusable from a professional video standpoint (which is the whole point of Reference Mode to begin with, and actually the reason I bought the 5th gen 12.9" iPad Pro).
It's also worth noting that the iPad Pro is still limited to a 10Gbps USB 3.1 connection with Apple Silicone Macs, despite both devices having Thunderbolt 4 capabilities.
Nevertheless, 10Gbps is still plenty of bandwidth to avoid the severe artefacting seen in Sidecar on Reference Mode.
iPad Pro (5th generation)