I'm glad that you were able to resolve your issue and thank you for posting your solution so that others experiencing the same thing can easily reference this! Since the Microsoft Q&A community has a policy that "The question author cannot accept their own answer. They can only accept answers by others ", I'll repost your solution in case you'd like to "Accept " the answer.
Issue: Unable to run New-AzGalleryImageVersion
Solution: You were utilizing
-SourceImageId
The ID of the source image from which the Image Version is going to be created.
You changed to
-SourceImageVMId
The resource Id of the source virtual machine. Only required when capturing a virtual machine to source this Gallery Image Version.
This appears to be related to this same GitHub issue. This has been reported to our service team.
https://github.com/Azure/azure-cli/issues/28700
If you have any other questions or are still running into more issues, please let me know. Thank you again for your time and patience throughout this issue.
Please remember to "Accept Answer" if any answer/reply helped, so that others in the community facing similar issues can easily find the solution.