Windows 11 25H2 desktop shell broken after January updates

Hello,

We are seeing a repeatable issue after upgrading users to Windows 11 25H2 and installing the January 2026 cumulative updates, and I’m trying to determine if this is a known or emerging regression.

Affected machines are on OS Build: (10.0.26200.7623)

Issue Summary

After the update, some users experience a broken Desktop shell:

Desktop folder icons do not open when double-clicked

Recycle Bin does not open from the Desktop

Right-click context menus appear, but Open / double-click does nothing

The same folders open normally when accessed via File Explorer using the full path

Issue affects only certain users, but we have now seen it on multiple machines

Recycle Bin being affected suggests this is not a file or OneDrive issue, but a Desktop shell / namespace problem.

Environment

Windows 11 25H2

January 2026 cumulative updates installed

Microsoft 365 environment

OneDrive in use with Desktop Known Folder Move enabled

Issue appeared after the 25H2 + January CU combination

Troubleshooting Already Performed

Restarted Explorer, ShellExperienceHost, StartMenuExperienceHost

Cleared Explorer Bags / BagMRU (HKCU)

Reset icon and thumbnail caches

Forced OneDrive files to be local (“Always keep on this device”)

Renamed affected folders (removed special characters)

Verified desktop path resolution

Confirmed issue persists across reboots

In at least one case, clearing Explorer Bags caused the Desktop to fail to re-render until reboot, further pointing to shell state corruption.

Observed Behavior

Desktop icons visually render

Click handlers do not fire

Recycle Bin (CLSID object) is non-functional from Desktop

File Explorer itself continues to work normally

Expected Behavior

Desktop icons and shell objects (including Recycle Bin) should open normally.

Question

Has anyone else seen reports of:

Desktop shell / namespace issues

Recycle Bin not opening

Desktop icons becoming non-interactive

after Windows 11 25H2 + January cumulative updates, particularly in environments using OneDrive Known Folder Move?

If this is a known issue or being investigated, any confirmation or guidance would be appreciated.

Thanks.