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Hello,
I have a simple report using a dynamic parameter with DirectQuery that works locally on Power BI Desktop for RS, and also works on the Power BI Service with gateway. On the report server, when I change the bound parameter on the slicer, the table looks like it's updating, and the logs show the new parameter is set, but the data does not update and continues to use the initial parameter value set. I have updated to January 2023. Are there plans to fix?
Short answer is that I believe this is by design, not a bug.
Unfortunately not every feature that works in the service is supported in the on-prem Report Server. If you check here https://learn.microsoft.com/en-us/power-bi/report-server/compare-report-server-service it says that Dynamic M Parameters are not supported on Report Server. In fact Desktop for RS should not let you configure this option. Did you create the report in Desktop for RS or was it originally created in a service version of Desktop?
So if you really need Dynamic M Parameters then publishing your report on the service and using a gateway is currently the only supported option.