Thanks to @gert-jan I got the test case and time to do one last push for the Windows Server 2016 support.
We took a clean image on AWS Lightsail for Windows Server 2016 and threw all updates, patches, and tricks at it but unfortunately, the long path support is just not fully there. The settings and all documentation points towards it being there but the support just does not work on the CLI and even file explorer level that the python projects need.
So unfortunately we have to drop Windows Server 2016 from the supported OS list. This version of Windows is also reaching the end of mainstream support in October this year so the recommendation is to start updating to 2019.
Just to confirm I ran tests on Windows Server 2019 and Lab and all requirements are working. The long paths support is still off by default in clean images for some reason but the built-in fix in Lab is able to set the registry correctly. If you have an IT department involved it is highly recommended that this is setting is done on the policy level as there really is no reason not to have this in on by default. The guide here is written with IT in mind.
I also updated our system requirements page.