This bug needs to be elevated to Apple Support, it's obviously a bug in iOS 16. I'm experiencing the same issue, a reboot does nothing. I am running iOS 16.0.3 on an iPhone 12 Pro. Only happens in Landscape mode.
In apps where it's possible to rotate the screen you can mitigate this by starting Guided Access (even if it looks messed up) and then exiting Guided Access. After you enter your password to exit Guided Access, you can rotate the screen to portrait orientation, and then rotate it back to landscape, and now it should show up correctly and you should be able to draw in the areas you'd like to disable. Unfortunately this does not work for games and other apps where the screen is forced into landscape orientation.
There are lots of disabled people who rely on this mode. Really not cool for Apple to have not bothered to test it on last year's phones.