I've no issue with the logic of needing to update feature branches before merging, that's pretty bread and butter. The specific issue with this workflow is that the "update branch" button for PR B is grayed out because there are these hallucinated conflicts due to the new squash commit.
The update branch button works normally when I don't stack the PRs, so I don't know. It just feels like a half baked feature that GitHub automatically changes the PR target branch in this scenario but doesn't automatically do whatever it takes for a 'git merge origin/main' to work.
> the "update branch" button for PR B is grayed out because there are these hallucinated conflicts due to the new squash commit
Those are not hallucinated. PR B still contains all the old commits of A which means merging would apply them twice. The changes in PR B are computed according to the oldest commits belonging to PR B and main which is the parent of squashed A. That would essentially means applying A twice which is not good.
As for updating PR B, PR B doesn't know where PR A (that are also in PR B) ends because PR A is not in main. Squashed A is a new commit and its diff corresponds to the diff of a range of commits in PR B (the old commits of PR A), not the whole B. There's a lot of metadata you'd need to store to be able to update PR B.