Hi all. Here's an update but first one quick correction. The behavior leading to the error is "expected" as I called out, however, it's not by design (sorry, I had that wrong). It is due to a known bug in Windows that causes the detection to fail for a UWP app installing in system context if any user on that system already has that UWP app installed. The bug is currently in the backlog to be fixed and backported and we don't have anything specific to share about when it will be addressed.
The only known path forward, as of now, on systems where at least one user has the app installed and you'd rather have it installed in the system context is to use an uninstall of that app first in user context. Once that's successful for all users on that system, you can then use an install in system context for the app on those systems. We fully acknowledge that this is not necessarily ideal for all scenarios, but at this time, it is the only path forward that we can directly offer.