Sprite Atlas forces user to search for a sprite by name instead of allowing to drag one in from the Project panel

How to reproduce:
1. Open the attached project (1417714.zip)
2. Select the "Sprite Atlas" asset in the Project panel
3. In the Inspector in the list under "Objects for Packing" press the plus button

Expected result: a line with no assigned Sprite object is added to the list allowing the user to assign the sprite by dragging it in from the Project panel or selecting using the "Select Object" window
Actual result: a "Select Object" window opens up with no option to drag a Sprite into the list

Reproducible with: 2020.3.36f1, 2021.3.6f1, 2022.1.9f1, 2022.2.0b1, 2023.1.0a3

Reproducible on: Ubuntu 20.04, Windows 10, MacOS

Note: the issue is present both when using Sprite Atlas V2 and V1