I often try to open a new Terminal window in my current folder like that. Which often is impossible for the same reason. So I navigate up, until I find a folder that is not full, open the Terminal there, and ‚cd‘ down to the folder i wanted…
You can click on the three dot menu at the right of the path, there is an option to open a terminal. You can also switch to icon view and right-click between icons to open a terminal. You can also go to parent folder, right click the folder you were before and open it in a terminal.
Many workarounds but I agree it’s not really good UI.
Yea, there currently isn't exactly any way for selecting what application is considered a terminal other than hardcoding a list (which IIRC gnome-shell does). There is an open MR on xdg-specs[1] to address this, which seems to have stalled