The new SG intergration requires that the subasset to be used not the SG asset directly as stated in the doc https://docs.unity3d.com/Packages/com.unity.visualeffectgraph@17.3/manual/sg-working-with.html
We could add a way to directly drag and drop root SG but this is more a Quality of Life feature than an actual bug. We are therefore closing this bug as tracking the resquest as a feature.