NIP-07 sign-in was removed due to some extensions hasn't implemented NIP-44 encryption yet.
Blowater now still decrypts NIP-4 events, but will encrypt all DMs with NIP-44.
Therefore, using a NIP-07 extension effectively breaks DM, at least for now.
This is a trade off that's painful to make.
Not much love is put into encrypted events in the community as a whole so that I decided to break some patterns to just unblock the product development.
A more secure design is welcome and I will work on it.