package smartmontools 7.1-1build1 failed to install/upgrade: conffile difference visualizer subprocess returned error exit status 127

Hmm, the pager is called from dpkg to show the diff in your case.
This didn't change and dpkg doesn't do anything magic.

I can only assume that you might have the "pager" itself setup in an odd way.
Due to a bug or intentional - I don't know.

Could you report back the output of:

$ update-alternatives --display pager

That most likely should look like:
root@f2:~# update-alternatives --display pager
pager - auto mode
  link best version is /usr/bin/less
  link currently points to /usr/bin/less
  link pager is /usr/bin/pager
  slave pager.1.gz is /usr/share/man/man1/pager.1.gz
/bin/more - priority 50
  slave pager.1.gz: /usr/share/man/man1/more.1.gz
/usr/bin/less - priority 77
  slave pager.1.gz: /usr/share/man/man1/less.1.gz

If that is broken then I could see how the above error could happen.

Finally if that is not a local setup issue, then still it would be more likely in dpkg and or less (as the common and default pager - both are auto-installed and I see them updated in your log). I'll re-assign the bug tasks accordingly.

Here it is on my system:

$ update-alternatives --display pager
pager - auto mode
  link best version is /usr/bin/less
  link currently points to /usr/bin/less
  link pager is /usr/bin/pager
  slave pager.1.gz is /usr/share/man/man1/pager.1.gz
/bin/more - priority 50
  slave pager.1.gz: /usr/share/man/man1/more.1.gz
/usr/bin/less - priority 77
  slave pager.1.gz: /usr/share/man/man1/less.1.gz
/usr/bin/w3m - priority 25
  slave pager.1.gz: /usr/share/man/man1/w3m.1.gz

However this output is for my system in its current state, that has been fixed by finishing the eoan -> focal upgrade. The alternative was probably transiently broken during the upgrade.

Status changed to 'Confirmed' because the bug affects multiple users.

Same issue occurred here during 19.10 -> 20.04 upgrade.

Configuration file '/etc/default/smartmontools'
 ==> Modified (by you or by a script) since installation.
 ==> Package distributor has shipped an updated version.
   What would you like to do about it ? Your options are:
    Y or I : install the package maintainer's version
    N or O : keep your currently-installed version
      D : show the differences between the versions
      Z : start a shell to examine the situation
 The default action is to keep your current version.
*** smartmontools (Y/I/N/O/D/Z) [default=N] ? D
sh: 1: pager: not found
diff: standard output: Broken pipe

Pager worked fine during the upgrade with packages before and after smartmontools.