Must be some issue in .obsidian folder.
So the way I went now, in case someone else is stumbling across this:
- create a new vault
- manually copy all your files over into that new vault from your existing one. But NOT THE .obsidian FOLDER
- manually recreate the environment you are used to with your plugins, your hotkeys, your theme, and your layout
- manually rename your new vault (and possibly keep your old one as backup)
Now undo with Ctrl-z is working in the recreated vault.
Quite tedious enveavor. Though, probably less time consuming than trying to figure out what’s going on.