honestly mojang just doesnt really care about blocked usernames or anything in general. this has been a problem since atleast 2016 and im sure its been reported thousands of times. if they were to unblock something they would probably just do it privately with no announcement so the username just drops as they did with "Pedo"
This isnt related to Microsoft at all. The swear filter was just updated over the years and it just caused a scunthorpe problem with names like tRAPEzoid and grASSHOpper and tamboURINE
@ziroAU the bug is with microsoft accounts where they cant change capitalization but mojang accounts can. I made a bug report about this WEB-5123