I’m not good on the technical side of things, so I’m going to let Paul or someone else advise you there. In the meantime, the absolute best suggestion I have is to do your workouts in Resistance mode.
It adds to the mental load in its own way, of course, but at least you’ll be able to hit your power targets properly and avoid the frustration of the wattage flying all over the place, at least until a fix is found for your Erg issue.
Good luck 
Paul has given his usual excellent advice on this.
I’ll just chip in to say that it sounds like two separate (but probably related) things have changed here. Firstly, as has been said, you definitely had some sort of power smoothing going on in ERG mode previously, which you don’t have any longer. Secondly, you now seem to have more wild fluctuations going on than before when in ERG mode.
At this point I’d be testing it with something else, some other app, or a cycling computer, or a Garmin watch, and see if it can run an ERG mode workout as expected.
Nice quiz, certainly too hard for me to tell.
Was today’s workout in Resistance mode and has there been a very recent Zwift change to now make it easier to spot the difference?
The 2 × 35 was in Resistance. The shorter intervals were in Erg. AFAIK nothing has changed under the hood.
Gear display is showing what gear you are in when using virtual shifting when in sim mode (free ride) or incline mode (workouts).
Thanks, is that new for Workout incline mode or has it always been like that since virtual shifting came in?
I’ve only had virtual shifting since Christmas, so I can’t say for sure, but I’m guessing it’s been that way since virtual shifting was introduced.
Wattbike Atom gear in a Trainer Road workout in Zwift in Resistance Mode in a recovery interval 
