I'm having this issue too, exactly as described everywhere else in this thread.
Hilarious and extremely disapointing not only that this issue exists at all but It's been reported in the community for so long and nothing has been done to address this.
Whoever is the technical support person looking at this thread can you please escalate this to a software development team responsible for creating native file picker dialogs or also system preferences or whatever framework is used between them. I have this issue in both places.
At least with the file picker dialog I can resize it to get it working as expected.
The pages on system preferences I literally cannot use because the app cannot be resized by the mouse.
It is not a hardware issue, it is a software bug. My MBP is literally brand new and it has had this issue since day 1, my trackpad and Magic Mouse work literally perfectly elsewhere.
And yes I have updated my operating system, but regardless this issue has existed for so long I shouldn't even need to update anything considering this laptop is literally brand new.
At least on linux I never get bugs like this and if I did I would be able to fix it myself.