Are ultra-macro lenses above 1:1 limited by diffraction on modern sensors?

They are not pointless. Diffraction does increase as magnification rises, but that does not mean magnification beyond 1:1 gives no benefit.

The key point is that higher magnification makes tiny subject detail project larger on the sensor. Even if diffraction softens the image, details that were too small to sample well at 1:1 may become visible at 2:1 or higher. A diffraction-blurred point covering multiple pixels is often preferable to undersampling, and can improve rendering, color accuracy, and reduce aliasing.

So the choice is not simply “1:1 vs crop later.” Cropping a 1:1 image does not increase the optical size of the subject on the sensor; increasing magnification does. If a detail is too small at 1:1, more magnification can still help reveal it, even though ultimate resolution is diffraction-limited.

In practice, ultra-macro is valuable because it shows details you could not otherwise see. Diffraction sets a limit on the finest resolvable detail, but it does not make higher magnification useless. It just means there is a trade-off, not a hard cutoff where anything above 1:1 becomes pointless.