Note that the phrase "Input pin 123123 on "Apple Wireless Keyboard" doesn't appear UNTIL I press Return on the external keyboard, the terminal stays blank. If I try to enter a passcode and then press Return, it makes no difference, the passkey isn't registered. I also tried with different 6-digit codes with no result.
So to me it doesn't seem to be a problem with the UI but rather with the IOBluetooth API handling the pairing internally. I reported what seems to be a bug to Apple using the provided tool. Please help, I would like to avoid having to downgrade to Big Sur to get my external keyboard to work if possible. 2b1af7f3a8