I'm as disappointed in the new rules as anyone, but I'm going to call this one as most likely just a missing implementation rather than malicious.
The new Browser Engine Kit that allows alternative browsers to be installed is really a very deep integration. It's not just swapping out the browser and engine that users open as an app, it's swapping out all system integrations – webviews embedded in apps (in certain types of use), and importantly, PWAs pinned to the home screen. The APIs have a fairly sizeable surface area, and PWAs themselves have many features that require system support to implement.
My assumption would be that full PWA support will return, but that it was a significant amount of extra work that Apple decided to skip for the first implementation. I'm not sure if that was the right call, but they were under quite a deadline with the DMA coming in.
I think that’s a little disingenuous, it already works for the rest of the world so of course they had time to implement it, grabbing where you live via an internal API and disabling functionality is easier to do than implementing a browser selection prompt and exposing possibly new APIs to new browsers.
Without clear communication from Apple, people will assume that the change is a strategic move by Apple to not cede ground being lost due to the Digital Markets Act.
I hadn't heard about this, but it is indeed concerning. After my latest round of trying to publish apps on the iOS App Store, I concluded that PWAs were the best bet to getting a nice, polished user-experience without the soul-crushing process that is app store publishing.
I suppose a small bit of light (for me, not the community at-large) is that all of my targeted market is in the US. But I also acknowledge is they get away with that in the EU, the US will be next. Le sigh. This is why the Web is the best platform.