It’s not a bug, it’s a feature.
Essentially when in Input Mode Game (default if you don’t change it) the mouse is hidden. Activating that “show mouse cursor” does A LOT MORE than just showing it.
It actually gives the capture of the mouse input to UI instead - making it unavailable to your current Input Game Mode. Which is why clicking in your game suddenly gives you the input capture back.
One workaround is to render a UUserWidget in your viewport on mouse location, and keep the mouse hidden.