I'd guess the M3 features aren't required for nested virtualization, and it was more of a sw design decision to only add the support when some helpful hardware features were shipped too. Eg here's nested virtualization support for ARM on Linux in 2017: https://lwn.net/Articles/728193/

Nested virt does need hardware support to implement efficiently and securely. The Apple chips added that over time, eg M2 actually had somewhat workable support but still incomplete and hacky https://lwn.net/Articles/928426/ - the GIC (interrupt controller) was a mess to virtualise in older versions, which is different from the instruction set of the CPU.