having this issue as well, building 23.05.2.
I specified CONFIG_TARGET_ROOTFS_PARTSIZE in the .config and got the same warning: BIOS Boot Partition is under 1 MiB.
had to use the following, but not sure why 1024 solves the issue:
(line 52, not 56).
.
I guess you already know you can specify to ignore squashfs in .config, but if not: