I'm experiencing the same issue.
I can bypass it with git lfs install --skip-smudge in the host app, but it's not deterministic. Also, even if that works, Xcode will then download the pointer to the lfs file, not the actual file.
This is with Xcode Version 13.2 beta 2 (13C5081f)
Topic:
Developer Tools & Services
SubTopic:
Xcode
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