Is the MacBook Air M1's Bluetooth connection to AirPods still unreliable?

Yes, the M1 MacBook Air has known Bluetooth issues with AirPods, especially AirPods Pro and regular AirPods. Audio drops out for a second or two in crowded Wi-Fi or near other Bluetooth devices, and automatic switching between iPhone and Mac is unreliable. macOS updates have helped but not fully fixed it. You can try disabling Bluetooth on your iPhone, keeping the Mac close, and avoiding USB 3.0 hubs to reduce problems.