I had a similar issue and was told by Firebase support:

"...in order for you to be able to fully utilize and implement the email link authentication feature in your Firebase project, you will have to configure FDL as mentioned in the documentation (even though it will be deprecated or decommissioned). As mentioned in the documentation, this step is required for you to setup your email authentication feature in your project (hence the error exception you have encountered).

Note that (as stated in this section of the official FAQs page) your email link authentication (Using Firebase Authentication) would still work even after the deprecation of FDL in August 25, 2025. This is because, these two (FDL and Auth) are separate features and Firebase Auth only depends on the FDL service internally, not relying on the FDL SDK (which will be deprecated)."

So the answer seems to be yes, Firebase Dynamic Links are still required even though its doco warns you away from using them.