Hello again Eltjo Schol,
Just following up with your issue. Re-evaluating my previous recommendations regarding the DisableSmartCardNode registry key and the server-side fDisableSmartCard configuration, I must correct the architectural approach to this issue. While those policies successfully block virtual smart card redirection at the session host and kernel levels, they fundamentally cannot prevent the local Windows Security prompt from displaying the PIN option during the initial Network Level Authentication (NLA) handshake. This occurs because the Remote Desktop client relies on the universal CredUIPromptForWindowsCredentials API. When NLA is enforced, this API invokes the local machine's Credential Security Support Provider (CredSSP), which automatically enumerates all active system-wide credential providers, including the Windows Hello for Business (WHfB) PIN, entirely independent of the remote server's target capabilities.
Because the Windows LogonUI and CredUI subsystems share the exact same underlying credential provider architecture on the local Azure AD joined device, there is currently no native registry adjustment, Group Policy, or Microsoft-supported method to selectively exclude the WHfB PIN credential provider exclusively for the mstsc.exe process. Any attempt to globally block the WHfB credential provider GUID via the ExcludeCredentialProviders policy will persistently break the user's ability to log into their local physical device. Furthermore, as you noted with your past RDP settings, modifying connection strings in the .rdp files to bypass local CredSSP (such as setting enablecredsspsupport:i:0) is only a temporary workaround, as workspace feeds, Intune policies, or feature updates routinely overwrite these configurations back to their defaults.
I must admit that this is a known technical limitation within the current Windows credential provider architecture. Since configuring a Hybrid Cloud Kerberos Trust to seamlessly authenticate the PIN against the on-premises domain is strictly not possible in your environment, the resulting credential prompt confusion cannot be administratively bypassed at the client level. Microsoft has not yet introduced application-specific credential provider filtering. Until then, your users will unfortunately need to manually select the password option via the "More choices" interface during the RDP handshake.
Hope this answer brought you some useful information. If it has, please consider accepting the answer so that other people sharing the same issue would benefit too. Thank you :)
VP