Combine the lemon gelatin with 1 1/4 cups boiling water in a medium bowl, stirring continuously for about 2 minutes until the gelatin fully dissolves. Mix in the 1/2 cup cold water and allow the mixture to cool at room temperature for 10-15 minutes to prevent cooking the cake. Meanwhile, use a fork or skewer to pierce the cooled lemon cake all over, creating holes spaced roughly 1/2 inch apart across the entire surface.

Slowly pour the cooled gelatin mixture over the poked cake surface, ensuring it flows into all the holes. Pour gradually and pause between pours to allow proper absorption so the jello penetrates deeply rather than pooling on top. Refrigerate the cake for at least 3 hours or overnight until the jello fully sets.

Combine 1 1/4 cups cold milk with the lemon instant pudding mix in a medium bowl. Whisk briskly for 1-2 minutes until the pudding thickens and becomes smooth. Quickly fold in the 8 oz thawed whipped topping and 1/2 teaspoon vanilla extract using a spatula, employing gentle sweeping motions to maintain airiness. Stop folding as soon as everything is combined to avoid deflating the mixture.

Take the chilled, jello-soaked cake from the refrigerator and spread the lemon pudding topping evenly across the surface using an offset spatula or spoon. Create either a smooth finish or a rustic textured look. Return the frosted cake to the refrigerator and chill for 1-2 hours to allow the topping to set and flavors to meld.

Right before serving, remove the cake from the refrigerator and arrange the thinly sliced lemon rounds on top in your desired pattern. Scatter the 2 teaspoons of sprinkles over the frosting for color and texture. Slice and serve immediately to enjoy the contrast of cool jello, creamy pudding topping, and moist cake.