Incoming packet was garbled on decryption - plink proxy

WinSCP v6.3.4. This is a new configuration. I've never been able to get this to work. Windows 10 Enterprise 22H2. Using the GUI (default style)

I'm trying to use local proxy (plink) and WinSCP can't seem to connect to the plink SSH session. I'm not sure how to troubleshoot this issue. I'm getting an "Incoming packet was garbled on decryption" message back from WinSCP 6.3.4. Plink (putty-cac) is returning the SSH session with terminal escape sequences and I think that might be what is confusing WinSCP. I have tried changing SSH Bugs from Auto to On. But that didn't make a difference.

If I use the same plink command from a cmd window, I'm prompted for my smartcard PIN, then I get the banner message from the server, the 'Press return to begin session' prompt, then the Linux terminal. PuTTY also works perfectly too.

I've tried adding a \r to the proxy command too but that didn't work either as the \r was passed to the plink command line and generates a 'command not found' message in the logs as you can see.

Please help. Thank you!

How does the plink prompt for the PIN prompt? On console or separately in GUI window?
The local proxy command cannot prompt for anything on console. So while I'm not sure that your immediate problem ("Incoming packet was garbled on decryption") is caused by the PIN console prompt (if any), such prompt would break the connection in any case.

The plink proxy pops up a GUI window where you enter your PIN for the smartcard. I found an example with a internet search where they were able to get it working. But I can't seem to figure out how to get it to accept my SSH session. Thank you.

See "Launch WinSCP" page:
https://www.nccs.nasa.gov/sites/default/files/WinSCP%20and%20Putty%20Setup%20Guide%20Using%20PIV%20SmartCard%202023-Sept-28.pdf

Does psftp work with your local plink proxy?