If the second part of your sentence is true, could “allowing the client to set the nonce” be considered an increase in the possible attack surface?

The entire point of the nonce is that it can't be predicted by anyone but the client, proving that the client initiated the transaction. This is done by having the client send it over TLS and having the identity provider sign the nonce as cryptographic proof.

Also, by my reading, the problem is that the standard requires the nonce parameter to do something and Apple ignores it.

exactly, this looks like the protocol has been intentionally weakened to provide on the wire access. (state actors / telco)

The excuse that they dont want to sign up to the Terms and Conditions holds no water

If they are serious about security adopt OpenID in full (they dont have to join just pass the tests) and put fido2 security key functionality on every Apple device

Apple have made some smart moves but now the marketing dept need to do the right thing for security standards.

just like Duo Managed?