Reposting this from another thread that was lost in the ether:
I have a base M1 Mac Mini and Bluetooth is straight-up broken.
It started when I tried to update to macOS 11.0.1 and the computer hung after every restart in addition to my Magic Mouse and Bluetooth keyboard disconnecting. After a few times of that happening, the update somehow went through, I think after turning the computer off/on.
My Magic Mouse was also disconnecting after the computer went to sleep and sometimes for no reason, every time. Also, sometimes my Mini has simply not woken up from sleep. This is using the old 21" LG Ultrafine 4K monitor. So I've done two things there: set the computer in System Preferences to not go to sleep and just started using my Microsoft Bluetooth mouse.
My Microsoft Bluetooth keyboard was still disconnecting from time to time, so I'm now temporarily using my wife's Magic Keyboard until the wired keyboard/mouse I ordered from Amazon gets here.
I also tried some Apple Arcade games, figuring those should work ok...wrong. Trying The Pathless, the Nimbus wasn't even recognized, and my Xbox One controller exhibited controller drift to the point that it was unplayable. I also tried to play Samurai Jack with the Nimbus, and while that game did recognize the controller, it too exhibited controller drift which made the game unplayable.
I'm really really disappointed with the Bluetooth and sleep/wake performance here. I also have a 2016 12" Macbook and never had the slightest Bluetooth issue, so that makes me worried that it's related either to the M1 chip or the hardware design. My cheap wired keyboard/mouse coming on Monday should fix some of the problems, but it shouldn't be this way in the first place. It's still not going to fix the controller situation, or the sleep/wake issues, or the general Bluetooth issues. If it really is a hardware issue, then I'll have no choice but to return it. Apple better acknowledge this problem quickly, or this is going to blow up and get out of hand pretty quickly.