I had the same issue. Turns out I apparently got an older version of Team installed (not sure where I downloaded that one from, I'm actually quite certain that it was from Microsoft). After re-installing from: https://www.microsoft.com/en-gb/microsoft-365/microsoft-teams/download-app
it worked flawlessly, and also the UI seemed to be a little more modern.
It may be that for some reason, this also had to do with signing in. In the previous version, signing in didn't really work, or it could be that by re-installing, I somehow fixed the login-issue.
One thing that I had also tried was manually adding the Backgrounds folder (which was missing in my installation, and the log also showed an error because that folder was missing). I added Backgrounds and under Backgrounds "Uploads". That was in
C:\Users<MyUserName>\AppData\Roaming\Microsoft\Teams\Backgrounds. After I had added that folder, after starting the app, it did add a thumbnail - but the backgrounds still didn't show up.
Anyways, now, after re-installing, it all worked as expected (and also, finally, it remembers my audio-settings).