I figured it out, the answer was somewhat hinted at in my final question: “How does the material instance know about these foliage collections I set up?”
Well, according to the educational video in the official course “it just knows” (paraphrasing). Surprisingly, it doesn’t just know. You have to add your foliage collections into the Landscape Grass Node. In the video, the instructor does NOT do this. I’m guessing the editor forgot to add in the 10 second clip where the instructor does update the Landscape Grass node with the LS assets.
After updating, saving, then updating the MI so that changes to the MM would take, it worked as intended. So not a bug, just a bad educational video. If I was paying for the course I’d be a bit annoyed, fortunately my sponsor is.