Possibly just found the answer to this, it is not the ADF managed identity account that fails to login, it is 2 x standard SQL accounts set up on installation, one of which is AzureIntegrationServiceWorker.
*https://learn.microsoft.com/en-us/azure/data-factory/enable-aad-authentication-azure-ssis-ir
*In this scenario, Azure AD authentication with the specified system/user-assigned managed identity for your ADF is only used in the provisioning and subsequent starting operations of your Azure-SSIS IR that will in turn provision and or connect to SSISDB. For SSIS package executions, your Azure-SSIS IR will still connect to SSISDB to fetch packages using SQL authentication with fully managed accounts (AzureIntegrationServiceDbo and AzureIntegrationServiceWorker) that are created during SSISDB provisioning.**
It seems SQL Authorisation is still needed for now. Switching the SQL MI to 'AAD only' - disables the '2 SQL Authorisation out of the box accounts' that are required to run packages set up in the SSISDB through Project deployment.
So it looks like you can 'Enable Azure Active Directory authentication for Azure-SSIS integration runtime' but **not switch the **SQL MI itself to AAD only**** because the 2 x fully managed SQL Authorisation accounts are required for SSIS-IR Start up.
Thanks