What did that statement suppose to do?

If LAST_VALUE() worked with server variables, that statement would assign the same string to both session sql_mode and global sql_mode.

Server variables can only be assigned in the SET statement. Not in an expression. User variables can be assigned inside of an expression — that's why they work in the LAST_VALUE, and often are used in the SELECT statement. But you cannot use server variables this way (not in the SELECT statement either). I don't think we should make an exception for "LAST_VALUE in the SET statement" use case. So what you're really asking about is to allow server variables to be assigned inside an expression. This looks like a reasonable feature request.

But I'll close this MDEV-6176, because we cannot implement it the way it's formulated (allow server variables to be assigned in LAST_VALUE in the SET statement). And it's too specific to be converted to a more general one (allow server variables to be assigned inside an expression). Feel free to create a new feature request for server variables in an expression, if you'd like it to be considered.