Comment by dmd

initially also cannot, but now can. open wallpaper setting > choose + in color section, choose any color, close popup, (IMPORTANT) close setting panel.

now reopen the wallpaper setting again, click on top right custom color and do this, somehow the behavior is different. Now it change the wallpaper color as you drag over the colors rather than mouseup. My guess is clicking on + button at the bottom is triggering the popup config to update on mouseup, while opening it fresh will configure it to trigger on update, until the + button is clicked.

Did you try it with numerous pointing devices, or one in particular? It took only one try on a trackpad, M3 MBP