<< Does that mean the M2 Pro and M2 Max are capable of 120Hz on Thunderbolt 4? >>
No. Their ThunderBolt-3 or -4 busses are limited to "slower" data rates up to 40 G bit/sec maximum, which limits every model of Studio Display XDR to 60 Hz maximum at HDR 10 bits/color.
In addition, on Thunderbolt-3 or -4 Macs, that display is driven by TWO display-generators, so it counts as TWO of your total number of External displays.
When the newer model XDR display is connected on a Thunderbolt -3 or -4 bus out of the Mac, there is very little bandwidth left for other devices. Both the ThunderBolt hub and the USB hub can be used, but Not for daisy-chaining another display or supporting a high-speed device like a disk drive at its rated speed.
Keyboards? sure.
USB Thumb Drive when needed? no problem.
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The big boost in data rates happens when every item -- the Mac port, the Thunderbolt-5 cable, AND the external device -- are all rated for Thunderbolt-5, and not otherwise. Thunderbolt-5 uses a different advanced signaling method, and every device must be capable of using that advanced signaling method, or none can.