Running the latest update of VMWARE Workstation 16.2.1 and have a VM configured with Windows 11 Enterprise. I have the image encrypted and virtual TPM enabled. I have USB mode set to 3.1 and have also tried 2.0. All removable USB devices are showing greyed out and can not be attached to the guest. I found this article where someone else was having a similar issue however this particular setting is not accessible in the VMX file once the guest has been encrypted. I tried toggling this manually in the VMX file prior to encrypting the guest, but same issue.
Verified the USB Arbitrator is working (didn't have this issue previously on this host, but VMware Workstation was already previously updated so not sure when this got introduced). Have re-built the VM several times now, same issue. Latest VMware tools are installed.