Did not resolve the issue
This is a head scratcher.
If you have another Windows 11 computer to test it on, I suggest installing there to confirm that the thumbnails work and, hopefully, spot some difference. If you don't have another machine, you can do what I did and test in a VM (Virtual Machine) at least as a sanity check. I use VMWare Workstation Pro (it's free for personal use) but any VM system is fine. I know that's a big ask, but it's a useful thing to have on hand for any future testing. It's great to test out software before committing to your main Windows build.
I wish I had a quick fix, but we already tried all the usual troubleshooting steps.
Do you have any security software installed other than Windows Defender? Do you have any software installed that modifies or enhances Explorer? Does your computer come with any software pre-installed by the vendor? There's an obscure bug in some backup software that comes with Megahertz motherboards, that interferes with Explorer, so you never know.