BYOD devices can't launch Windows 365 PC because of device compliance check during CA policy check.

Yes, the exclusions you configured for Azure Virtual Desktop, Windows 365, and Windows Cloud Login are application-based. However, the Windows 365 sign-in flow uses multiple backend services, and the “Windows 365 Client” shown in the sign-in logs is not always directly targetable in Conditional Access. Because of this, app-based exclusions alone may not be enough in this scenario.

In this case, the better approach is to keep the global “Require compliant device” policy in place and manage Windows 365 access for BYOD users with a separate Conditional Access policy. For those users, you can use controls like MFA instead of requiring device compliance.