I didn't understand why the interpolated string version had no errors but the "explicit" version has this error. Could you please clarify?

My understanding is the interpolated string version is considered as creating a CustomHandler instance as if the new CustomHandler() and the interpolated string arguments were combined as an object initializer. In F1(), where the interpolated string argument s has safe-to-escape of the current method, the resulting CustomHandler instance will have safe-to-escape of the current method as well. In F2(), the argument s is not included in the CustomHandler object initializer, so the resulting instance is safe-to-escape of the calling method.

My understanding is the interpolated string version is considered as creating a CustomHandler instance as if the new CustomHandler() and the interpolated string arguments were combined as an object initializer.

I would expect these scenarios to have the same behavior.

I would expect these scenarios to have the same behavior.

If we make the CustomHandler in the first example explicit, the two examples are essentially:

CustomHandler h1 = $"{s}";
M(h1);

CustomHandler h2 = new CustomHandler(0, 1);
h2.AppendFormatted(s);
M(h2);

The difference between the two is the initializers: the initializer for h1 limits the scope to the current method; the initializer for h2 does not limit the scope.