Does anyone know why hiking has been removed as an activity on the Venu SQ? It was there last Sunday and then disappeared yesterday.
Possibly you removed it accidentally. Add it back again.
Ah, yes, you are right, it is only available on Venu 2 and higher
Activity Profile Options On My Wellness Watch | Garmin Customer Support

Perhaps you had it there as a custom activity profile. Or a Connect IQ app. In that case you will have to add it in the same way.
The last update released for Venu 1st gen was the v7.80 in 2022, so there was no recent update. Perhaps it was just an update of time zones, or the magnetic poles correction, that you received - those come every couple of months to all models.
Did not you use a different language originally? In some languages the names for walking and hiking sound very similar, or may be perhaps even wrong in some cases.
As to your other question, all of my previous activities that were categorized as hiking are now listed as walking
BTW, you can change the type of the activity in Garmin Connect whenever you want. So if you prefer having them logged as hiking, just change the type in GC.