Test case:

1. Set a nickname.
2. set afk-list-name: '&7{USERNAME}'
3. Do /afk
4. Move around a bit so AFK is cancelled.

This produces expected behavior—the player's tablist name was their username, but greyed out, and now their tablist name is back to their nickname.

Test case 2:

1. Set a nickname.
2. Set afk-list-name: '&7{USERNAME}'
3. Do /afk
4. Do /afk again.

In step 4, unlike in the first test case, the players tablist name is now their username, without formatting codes, nicknames or anything. That's what's unexpected.

Thanks for the detailed report. I have a few followup questions:

1. did this happen in essentials before essentialsx?
2. Is this player vanished when using /afk to come back from being afk.
3. If not, please run this with debug and paste the log output in pastebin.

I expected the same bug when going back from AFK with /afk. After a /list or if the player speaks the name is fixed, but you have to do this every time a player goes out of /afk.
Also, another issue : when it's the auto-afk (not the command) the name is not grayed out. Only with /afk.
All this bugs are happening without anyone being vanished.

Closing due to inactivity; if this is still a problem, please open a new issue.