I read the Mac posts on this issue and there are several. One stated that they reported it and have heard nothing, and two others said they are using the third party XLD as a work around.
I am on Big Sur, so no iTunes. My settings are the same as yours in Apple Music. Unfortunately the message I get from MC 28 is...
"There is no disc.
Insert a disc and double-click here to refresh"
Double-clicking or refreshing does not resolve the issue. When I try this in MC 27, no issues at all. I also compared my settings from MC 27 to MC 28 and they are identical. I would think that if it an Apple setting, it should affect MC 27, but that is not the case. My MC 27 looks like your MC 28 screen shot.