Just found this. I had this problem too, with both recent updates of Monterey (12.5.1 and 12.6) but managed to resolve it, both times, in a way that survived reboots. It was a few months ago so the precise sequence of events is a wee bit vague but, in case it is of use, here's what I recall.
Like the OP I have a Mac mini (2018) with a tiny hard drive (120GB), so had moved my home folder to a USB SSD. After applying the 12.5.1 OS update, I could not log back into my account, instead getting the helpful message "You are unable to log in to the user account <my username> at this time. Logging in to the account failed because an error occurred."
Luckily I had a separate unused admin account whose home folder was on the main hard drive and was able to log in to that (after using the recovery partition tools to reset the password, as I'd forgotten it).
(If you don't have another admin account, btw, you can create one by deleting a certain file and making your Mac think it's being set up for the first time. See for instance here: https://www.lifewire.com/create-new-admin-account-for-login-issues-2259976)
As that admin, I right-clicked on my account in System Preferences to get Advanced Options and saw that the name of the hard drive in the path to the Home Directory didn't match the one listed in Terminal - it had an extra " 1" at the end, IIRC. So I changed it to match.
This time I was able to log in – but all of my stuff was gone, as the OS had created a new home folder for me, in the wrong place.
Logging in as the spare admin again I was eventually able to see, both in Terminal and Finder, that the external HD was listed twice. I think they had different icons in Finder. In Terminal, using
cd /Volumes
ls -l
I was able to see that the one with the "correct" name (no extra " 1" at the end) was listed next to today's date, and the group "_analyticsusers". Another version had an older date and the extra " 1" and had the group "admin".
After very carefully checking I had chosen the correct one, I unmounted or deleted (sorry, can't remember which, but I think it was deleting) the other. I think I may've had to use the right-click-on-the-user-account thing again as well, to change the path of my home directory back to its original version – but the nub of the issue was that the correct/original mountpoint name for the drive had been taken by the _analyticsusers group, which presumably I wasn't a member of. Getting rid of it and rebooting made everything OK again, and restored the HD to its original mount name (without " 1") – until the 12.6 OS update, when I had to do the latter steps all over again.
As I say, it was a month ago now, and I didn't document the steps at the time, so am a little sketchy on details. So please treat the above with great caution and don't delete anything if you're not sure!
If there's another update and I encounter the problem again, which I think is highly likely given Apple's disregard of any users with non-default set-ups, I'll return try to provide more details, but perhaps the above may offer a clue as to how to deal with the issue in the meanwhile.
Good luck everyone.