Smart object automatic distortion

Interesting. Hadn't noticed this before. BTY cute corgi. Looks very much like one we used to have.

Is it wrong for Photoshop To presurve a document  smart object  layer's Size and Aspect Ratio I will not get on either side for it does not matter to me.  I havs seen the distortion you show in 21.2 on my machine.  However, Today 21.2 is working like prior version of Phoroshop like CS6.  Still I think my testing will  will show changing a Smart Object size is not a thing one shoul do.

What is wrong  is changing a smart object's Size.  Here I explore your square Smart  Object with replacement Objects that are not square.  One object I try is larger then the Square Object and the other object is smaller then the square one.   Does this work in old versions and not 21.2.  You seem to claim old version does thing Right. I claim Changing the size  of a smart object is a no no.   Here is what I observed using CS6 and using 21.2.  I stand by my claim changing the size of a smart object is a no no. It should not be done. However, with a single layer you may get away with it with some replacements.

I do not know my MY 21.2 version is working like cs6 today it was working like you show a day or two ago

I do not believe its a bug.  Its a fix.  Users have been opening Smart object and changing the Object size via image size and crop,  That should not be done.  Once a Smart Object is created and hardened there is a transform created to transform the Smart Object Pixels to generate  pixels used for the layer that scale and positions the  layer pixels in some area over the document's canvas.   You can not change a smart object actual pixels with Photoshop tools.   You can Replace the smart objects Pixels using Replace content or Open and editing the pixels. However Using replace content or Open  can not change the number of Pixels.  For the object transform is not changed.  There cans be many of them for object can be shared by copied layers. And warping can be added,  These layers Object transform will not work it the object size is changed.