Well, you all may get a kick out of this, and I'm not flagging it as "SOLVED", as who knows how the "fix" will last.
For whatever reason, I began to think how Apple has so many parameters crammed into the Mail index, including folder and sub-folder names and locations, and so on…
If the Mail index gets corrupted, it is basically a shattered map. It made sense that Keyboard Maestro might also be confused.
I did a complete trash and rebuild of the Mac Mail index and now things are peachy.
You are, in essense, talking about simplifying the path by reducing the number of menu items. I did indeed move the "Move to…" destination to the top level of the mail directories (yes, tried this with other ISP mailboxes in Mac Mail, to answer Nige_S' later question).
I've said all along this is a Mac thing; not at KM thing.
What's changed in the last six months are any number of things are far as some very serious under-the-hood O/S reworking on fronts like…MAIL. They are pitched as Sequoia updates, but they are a bit more complicated than that, as our IT team will attest as they scramble to stay ahead of what the lastest Apple O/S brain trust throws down the pike.
Over many years, I've found that a clean install can work wonders, even if it's just superstition. You are correct, though: KM functioning fine elsewhere. I thought some corrupt plist or something might be throwing things out of kilter, but in the end…