We had the same issue with cameraDevice = .rear, the camera preview in the UIImagePickerController would freeze and blur when turning on the torch.
Turns out the issue was that we enabled the torch on a different camera device than the one used by UIImagePickerController.
When using the right input device, it works.
On iPhone 13 Mini, we had to use .builtInDualWideCamera to turn on the torch while UIImagePickerController was active.