I'm also running into this issue. Xcode is just ignoring the .ssh/config file where the correct key exchange algorithms to use are listed.
Unbelievable that this issue is still not fixed :(. For SPM integration I can only recommend configure to use the user configured git for this, which does respect .ssh/config.
You can do this by executing this in a terminal:
defaults write com.apple.dt.Xcode IDEPackageSupportUseBuiltinSCM YES
I haven't found an equivalent preference to tell Xcode to use user configured git client for everything.
For when Apple engineers would be reading this, details can be found https://devblogs.microsoft.com/devops/ssh-rsa-deprecation/
Topic:
Developer Tools & Services
SubTopic:
Xcode
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