Giving organizational policy administrators control over execution doesn't preclude using the cloud as your primary or strongest security model.

It's sincerely not difficult to allow the organization to literally sign the executable of the interpreter they want to use, to explicitly enable or disable specific modules from base Python, to enable specific external libraries by ID through Conda or by signing them with their own keys, or to pass the scripts to their own signed server for execution with any mitigations they want. They wouldn't be assuming any liability or even bad will if a company's IT fucked it up and left an attack vector exposed.

There is not a good faith explanation for forcing execution to the cloud. It only protects against bad configuration, at the cost of a hell of a lot of capability to a competent organization. Defaults are way more than enough to mitigate any exposure for Microsoft. Not providing the right way to do it as an option is all about control.