The "Always day" and "Do daylight cycle" buttons are docked to each other when they shouldn't be (in the world creation menu). Deactivating the "Always day" button activates the "Do Daylight Cycle" button, when it shouldn't be. This works fine in the in-game world edit menu.
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Thank you for your report!
After consideration, the issue is being closed as Working as Intended.
Please note, that mechanics of the game may change between updates.
Things such as graphics, sounds, world creation, biomes, redstone, villagers, and animals may not work the same in current versions.
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Fixed in 1.17.20.23?