Microsoft just broke some custom folder icons, and it's deliberate

Windows 11 is now silently reverting custom folder icons to defaults when the desktop.ini file is deemed to come from an untrusted source. This is intentional security hardening by Microsoft, not a bug. Untrusted sources include files with Mark-of-the-Web, files from certain WebDAV/HTTP locations, and network paths not classified as intranet or trusted. Fixes include adding the source to Trusted Sites, enabling the 'Allow the use of remote paths in file shortcut icons' policy, or removing the Mark-of-the-Web tag.