It seems to be triggered by illustrators internal clipboard. It also happens if I copy using a script. I can copy graphics from other adobe apps and they wont hang when pasting into illustrator but if I copy the same graphic I pasted from within illustrator it will hang again until purged. And it seems to be caused by illustrators clipboard and no other apps clipboards. The settings in the illustrator clipboard preferences do nothing to alleviate this.
If I do not do that I have to quit illustrator for it to work again because it purges its clipboard on quit. It instantly starts working again if I copy some text for example in another application. In illustrator 25.0.1 when I copy anything other than text the km engine hangs and will no longer work in any app until the clipboard is purged of that graphic.
So far this is the only crippling bug I have found while testing out an M1 Mac mini.