Nanite does not work with WPO well, in its’ current state especially.
I got to hear from Brian Karris (creator of Nanite) indirectly about this, but by and large WPO with Nanite is extremely experimental, and any very suprising/unpredictable results are par for the course.
If you’re looking for a replacement for tessellation, you are unfortunately somewhat out of luck. The new recommended pathway instead is to use Epic’s in-engine subdivision tools to modify your meshes to the appropriate detail, with Nanite supporting whatever you need (at least that was the recommended pathway at some point). Epic has orphaned the tessellation featureset.
Also, just out of pure personal curiosity, what is the benefit in your workflow to having a densely-tesselated Nanite mesh to then displace, as opposed to simply having a Nanite mesh already in the shape you desire?