Hello Ben Rupp
This behavior is a regression introduced by KB5073724. The patch is interfering with how the shell interprets desktop.ini files in user profile folders, which is why your localized or custom display names for Documents are being ignored and the system is reverting to the physical folder name. The greyed‑out rename option is consistent with the OS now treating these folders as fixed system folders rather than allowing a localized alias via desktop.ini. This feature has historically been supported since Vista/Server 2008, so the break is not by design but a bug in the cumulative update.
At present there is no supported registry or policy tweak to restore the old behavior. Editing desktop.ini manually will not be honored because the shell is bypassing it. The only reliable workaround is to uninstall KB5073724 or roll back to the previous cumulative update until Microsoft issues a hotfix. If you cannot remove the patch due to security requirements, the alternative is to standardize on the default folder names temporarily and communicate this limitation to users. For mass deployments, you should block KB5073724 via WSUS or Intune until a corrected build is released. Microsoft has acknowledged similar issues in past cumulative updates for Windows 11, and the resolution has always been an out‑of‑band fix or correction in the next month’s cumulative rollup.
Given that you are on IoT LTSC, you cannot use Feedback Hub, but you should open a support case through your Microsoft Premier or Unified Support channel to escalate. That is the only path to get this logged and prioritized for servicing.
I hope you've found something useful here. If it helps you get more insight into the issue, it's appreciated to accept the answer. Should you have more questions, feel free to leave a message. Have a nice day!
Harry.