I tried the console command to expand it and still got the "not enough space" message, even though I had 96 Gig free. I moved the .xip file to an external drive that had 300 Gig free and I was able to expand it there, and then move the Xcode-beta.app file, which is 17.72 Gig, back to my main drive and it appears to be working fine.

App Store Review Guidelines - Section 4.5.2 covers Apple Music - https://developer.apple.com/app-store/review/guidelines/

It likely does apply to what you're trying to do. If you're looking to play sections of songs that is synced to any other media, such as video or at a certain point in a game, this requires a different license than music streaming. It would require a sychronization license - https://en.wikipedia.org/wiki/Synchronization_rights.

If your info.plist has a key for Privacy - Music Usage Description you need to remove it.

I also had this problem using Xcode 12.4. Following other suggestions here, I deleted my real devices from Xcode. That alone didn't fix it. But as others here have suggested, I re-added my devices and set them up as they had been set up before. And that worked. No more beach balls.