My experience:
After getting the Face ID not working symptom around the time of the upgrade to 17.1 I too thought it was related to the software update breaking something.
After several weeks of frustration, the diagnostics (previously clear) on my 3rd visit to Genius bar diagnosed a hardware issue.
Apple found that replacing the True Depth camera did not resolve the issue. They eventually diagnosed a faulty logic board. Under the (paid-for) repair they eventually provided a replacement phone.
I'm disappointed in the phone malfunctioning in this way after just 25 months, and also in the way the diagnostics and repair part of the support process worked. To say nothing of the ££ Apple has charged me.
However, I can confirm the replacement device works just fine under now iOS 17.3.
So, if you experience intermittent Face ID working, and in particular the 'Lower your camera' message on the Face ID re-enrolment dialogue then it is possible you may have the same root cause of a faulty logic board.