You will not be limited, as long as you enabled 165hz in the settings. Tho, you might experience some minor latency, at most one frame, but you really shouldn't, it depends. I would say that at 165hz, one frame of latency is not that much.

Also the compositor tearing option is there to allow the game to skip v-syncing and cause tearing. But, if the compositor allows tearing, and the game implements vsync, it will not tear. Actually, having both vsync in the game and tearing disabled in the compositor could cause more latency, but it depends, it might not.

Edit: I first said you should try what other comments said, but then I saw you already replied to them

Also, you said you are willing to lose some FPS by compositing the game to have windows on top. I want to make clear that you cannot have windows on top of the game without compositing. This is not a Linux/KDE/Wayland thing, it's just that compositing is the process that draws the windows. If this were an XBOX, so running a gaming-specific version of Windows on custom gaming specific hardware, it would still need to do compositing to draw a window on top of the game. Only something fullscreen can skip compositing, because at that point there's only one window to draw without any positioning or shading necessary. But compositing is done per display, so you could put those windows in a second monitor and still skip compositing the game.