As a test, I just created an ISO using the instructions for building a 21H2 Retail ISO (22000.978) from uupdump.net that are found in the Companion guide. I selected the English (United States) language, and included both Windows Home and Pro.  I did not select the "Include Updates" option as recommended in the Guide.

I do not see the "Failed to extract" error. 

I'm going to run a couple of other tests.