I am having the same issue, just started a few days back. I cannot add a passkey, as Firefox seems to send it directly to Windows which then asks for a hardware key; also cannot use an existing passkey that I know to be in BW.
I am not self-hosted. I have checked the notification setup, and passkeys are checked/on.
Versions Windows 10, Firefox 145.0.2 BW Version: 2025.11.1, BW Server version: 2025.11.1, and I have checked for updates.