When trying to replicate your issue, I actually ran into another issue:
This looks like a mesa bug and I don’t know why the desktop doesn’t start at all and I only get graphics glitches. Once I killed it and tried running reform-windowmanager again I got to replicate your issue but I don’t think it’s a mesa issue because moving the mouse actually enters some text into the terminal. Can you confirm that observation?
Maybe start a new thread about this issue because I’m quite certain that this is not sysimage-v3 specific but if you had updated your kernel and mesa in v2 to their current versions you would run into the exact same issue.