It seems the reality is that this was always possible, just not implemented as they didn't have a use case until now. Given the device firmware is closed source, the reality is this was always possibly (apart from for Ledger Nano S possibly). This doesn't make the situation any better, if anything much worse, but it seems many misunderstood what Ledger meant when they said seed phrases can't leave your device. What they really meant is that with the current firmware it's not possible, or at least not integrated I should say.

Here is also another discussion about the new Ledger update for anyone interested:
https://twitter.com/i/spaces/1PlKQpLVpPBxE/peek

The one takeaway I am getting from this is that there apparently isn't an option for an alternative firmware because ultimately the device remains capable of sharding/encrpting your seed phrase in the first place. The only upside is that it requires device-based confirmation, similar to signing signatures, or at least so they claim. So in reality, although this is an additional attack vector if you opt for this new service, their potentially isn't an extra attack vector by simply upgrading your firmware. Because just like requiring device-based confirmation for a signature, this is also true for sharding/encrypting your seed phrase. So the theory of not upgrading the firmware in order to avoid an extra attack vector is a false narrative, as based on the current chip, it remains possible to sharp/encrypt seed phrase anyway...

The bigger issue here is that sharing your seed phrase via device was never blocked by hardware, but instead firmware, up until now at least. Personally, I'm moving over to Trezor.