A partial answer to my own question:

This Hyper-V guest VM had two accounts - a Microsoft account (kusha) and a local account (Chansey). A strange observation was that even though the local account was used by default to log into the desktop, only the Microsoft account's username appeared under C:\Users (i.e., C:\Users\kusha).

I created a brand-new VM with Windows 11 IoT LTSC and ensured it didn’t use a Microsoft account (meaning the system only had a local account). This resolved the issue.

So, it’s reasonable to suspect it was a Windows account-related problem. However, tonight I rebooted the old guest VM and found the issue no longer existed in the old guest VM.

Thus, the root cause still remains unclear (perhaps a reboot was required after installing OpenSSH Server).

If no one else responds, I’ll close this question in 2-3 days. Thanks.