After a bit of experimenting, I see that this is just a focus problem in the Windows 11 Explorer.
The issue happens 100% of the time if your last click was in the address bar (e.g. you just typed in a path) and then select anything from the "New" menu at the upper left.
Microsoft needs to fix this so that the focus is first set to the main window before executing any of those "New" items.
The workaround is to right-click and select your "New" item.