Same issue Xcode 26 (17A321), I've added FB20258577 with icon composer file and the inspector settings per layer. By blur do people mean Liquid Glass effects? Otherwise we have normal blend mode.
The only way I was able to get a build uploaded today to fix my missing icon on the iPad target was to delete this file altogether. I have no idea why the iPhone target worked at all.
Xcode Cloud was building for 2 hours today with no feedback. I finally archived myself and saw the validation errors with the red herring of it being in an asset catalog.
So very tired but happy to have worked on betas again. I gave up on that when iOS 5 iCloud builds crashed every other launch and I had to revert three months of work. Not reverting Liquid Glass. It has issues, but it's very pretty when you give it a chance. It was inspiring to work with something beautiful amongst all the ugliness in the world these days.