Hi Tony,
Thanks for reporting. KB5085516 is an out-of-band update for Windows 11 24H2/25H2, and Microsoft’s release notes currently list no known issues for it. The update notes only mention a fix for Microsoft account sign-in. Since your symptom affects the on-screen keyboard and touch response at the sign-in screen, this may be a separate regression.
Please try the latest cumulative update after KB5085516 (Microsoft often fixes regressions quickly in follow-up updates). As a temporary workaround, uninstall KB5085516 to confirm whether the issue is directly caused by this update and, if reproducible, report it through Feedback Hub.
Hope this helps and that you're able to resolve the issue smoothly!
TV