Yes, I was aware and noted that, but thanks for confirming and pointing out the two possible root causes.
I tested in dev tools so I can rule out label_devices returning a list of lists, it just returns a flat list/array.
With the second option, I was able to search and find this thread on the problem: Using template generated list of device_id in action service - #2 by Troon
and that led me to the solution/workaround:
target: '{{ { ''device_id'': label_devices(''innovelli-dimmer-black'') } }}'
Edit: There is a downside to this workaround, and that is from the device view, you will not be able to see which that it is linked to this automation.