Hi,
We're sorry about the trouble with Photoshop on your M1 Mac. Would you mind telling us the exact macOS version you're working on? Does Photoshop only crash while dragging & dropping smart objects from Illustrator or do you experience similar behavior when you open a file directly? Please ensure you have all available macOS updates installed.
Please go to the System Preferences for your Mac, then Security and Privacy, then select the Privacy tab. Then select Accessibility from the list to the left & check if Photoshop is added to the list with a check mark in front of it. If Photoshop is not a part of the list, please add it by unlocking the window first using the lock at the bottom left, then clicking the + icon & navigating to the Applications folder. Also, grant permissions to Photoshop under Full disk access located in the same list as Accessibility. Once done, restart the Mac & check if it helps.
If the issue persists, please try installing the previous version of Photoshop (22.2) to check if you experience the same behavior. You can check out the steps suggested here: https://adobe.ly/2wH0JjE
Please uninstall the latest version of Photoshop first & select the option to Keep Preferences prior to installing the previous version.
Let us know how it goes!
Regards,
Nikunj
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