No, we don´t read out any registry keys.
The workflow in the installer is:
First, look which sim is installed (Marketversion or Steam) and where
Marketplace version is detected when the installer find
%localAppData%\Packages\Microsoft.FlightSimulator_8wekyb3d8bbwe\LocalCache
Steam version is detected when the installer find
%appData%\Microsoft Flight Simulator
After that, when the installer knows the sim, the installer looks into the corresponding path, if there is a UserCfg.opt file.
So, when you have only the Steam version installed, you can´t have the Marketplace path … but the screenshot shows exactly this Marketplace path - so it was existing on your system. You wrote, you had never installed any Marketplace version - so why do the path exists on your system?
The Steam version doesn´t use this path - doesn´t know anything about this path. So, you can delete it completely and when you run the installer again, you will see, that the installer works as expected without any copy&paste intervention.
What I personal don´t understand is, why/from where do your system has this Marketplace path when you had never installed a Alpha-version, a Marketplace version, Gamepass, … very odd.
Cheers,
Richard