Studio Display - sound gone suddenly?

Hello,

I've been using my Studio Display for the past few months with no problems, love it in fact. Today, upon connecting my MacBook Pro 14" - there is very weird sound behavior.

1) In applications like Teams, FaceTime, etc - there is no sound coming through (even though Sound settings are set on Output and Input both in the application and in MacOS 12.4 to be Studio Display). The other party can not hear me either.

2) When I go to Apple Music, and start playing a song, it will play like 1-2 seconds then cut out -- almost as if there is a milisecond of static before it goes out. I have lots of Airplay 2 speakers and when I test the 'casting' to one of them, the music is playing just fine (from MBP casted to Airplay output).

So there is definitely something that has happened with the Studio Display sound/microphone setup... I have not noticed any software updates specifically recently to Mac OS, I'm on 12.4 (21F79).