Hi ,
1): If DHCP is also on your DC, you can set OpenAclOnProxyUpdates to 0. This can also prevent "foreign" updates to records created by DHCP.
2):DC don't need to be put in DnsUpdateProxy Group, so it should not be the cause.
3):For service account, in AD, create and configure a dedicated Domain User account to use as credentials. The user account does not need any elevated rights, a normal user account is fine.
For your reference:
Security Concerning the DNSUpdate Proxy Group
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Thanks for your efforts you have put into this case and I believe partners who may visit this thread in the future will benefit from your sharing.
The following article talking about how to submit feedback to Microsoft, you can have a look:
https://support.microsoft.com/en-us/topic/uservoice-pages-430e1a78-e016-472a-a10f-dc2a3df3450a
Based on my understanding, you want to enable Block Downloads option via registry or PowerShell. Please feel free to let me know if I have any misunderstanding. I am currently performing research on this and will get back to you as soon as possible. I appreciate your patience.
If you have any updates during this process, please feel free to let me know.