The way Apple typically writes its support for third party devices assumes strict adherence to the spec in question, with funny things happening when they don't. Totally different philosophy from MS where writing in hacks to accommodate badly behaving/out of spec peripherals is just another Tuesday.
With that in mind it's not too surprising that a display firmware update fixed your problem.
So few displays have field/user upgradeable firmware. Dell publishes info about the latest firmware on their website, but with no downloads. You contact them and say my monitor has spotty DPMS and I see I’m a couple of firmware versions behind, how do I update? They tell you it’s not possible.
Might as well call it a hardware revision instead of a firmware version.
That makes sense. I don't know exactly what went wrong but the MacBook was having trouble sleeping and waking due to something related to talking to the monitor over USB-C sometimes timing out.
With that in mind it's not too surprising that a display firmware update fixed your problem.