Is it OK? Sure. My concern would be that you wouldn't get an even reveal as most rough openings don't exactly conform to the window size- it is easy to shim out a wood board to get consistent reveals but much trickier with drywall. I would have expected birch plywood here or a finger joint product

I agree it is fine to do but the issue is ow perfect are the recess walls Our windows are about 6"into the wall and we did MDF everywhere with no issue.

What’s a fingerboard product?

So neither the plywood, the fingerboard product, or the MDF will bow concaves on the sides and head? And what if the leak comes back?

Nothing will survive a window leak and you wouldn't want it to, you need to know if the window leaks. That said wood will hold up better than drywall when exposed to water.

Did it autocorrect fingerjoint again? So should i push for real wood, or is MDF or plywood fine if I’m planning to paint it?

Finger joint wood is a wood product made from several smaller pieces of wood glued together. In my region it comes primed and sanded and can be a very good product especially for wider boards that would tend to warp if you used solid wood. MDF and plywood might all work presuming they don't get wet. It also depends on who is in charge- drywall guy or trim guy!