Invalid Package - Sharepoint Framework Extensions

Issue was in the elements.xml file, but not in encoding. More obvious than that, but still hard to catch. App catalow actually has actually "unavailable apps" link, which provides details on the possible errors and it's typically really accurate.

If you open up the elements.xml file from the sharepoint/assets folder, you can see that the last Elements element is missing closing tag, like defined in above exception. Below is the original Elements.xml file content and you can see that we are missing final > closing. After adding that missing character there, it was all good for deployment.

<?xml version="1.0" encoding="utf-8"?>
<Elements xmlns="http://schemas.microsoft.com/sharepoint/">
    <CustomAction 
        Title="SPFxApplicationCustomizer"
        Location="ClientSideExtension.ApplicationCustomizer"
        ClientSideComponentId="43833b44-df29-40bf-aec2-294dd435ee05">
    </CustomAction>
</Elements

So - completely logical reason, was just hard to spot.