Now Nicole Woon, can you please confirm have I understood things correctly? So the dropdown for choosing custom design/template is gone for good and instead the users are now forced to flounder through multiple steps in order to do what they have previously been able to do with one single selection from the dropdown? You do realize this is a major drawback from the usability perspective, right?
In order to create let's say a project site that uses custom template, the user now first needs to create a site normally, then remember (or be reminded) that the template still needs to be changed, locate and hit the settings gear and the correct link underneath, change a tab from the appearing popup and then choose a correct template. Very error prone process I'd say. Sure, can be done and not a big issue for 90 % of the users, but that 10 % can really mess things up, since there are so many potential points of failure.
I'm sure you are constantly developing this and I hope we'll see improvement in this in the future. I just hope that you remember that simpler is usually better. Based on those gifs I think that may be a step to right direction, but still more error prone than it was before since there seems to be option to make a decision later and/or select Microsoft's default templates. At least for us it is business critical that our project sites use a correct project site template so that they will be e.g. joined to hub site correctly.
Our computer skills vary a lot and the more there are steps in the process the more error prone it gets. I completely second Mohammad Khatibi that reducing even one click is a win. I hope you keep that in mind when improving the custom templating features further. Thanks.