I believe devices intended to block necessary external environmental sounds should be prohibited while driving, including cycling.

Remember that a horn is a safety feature.

It's not about the cyclists wearing ANC headsets (which is already prohibited at least in Euro countries), but about pedestrians wearing them. Another problem altogether.

In effect they are, even if not directly. There are requirements to stay aware of your surroundings. If you cause an accident by blocking all sounds, I totally can see insurance companies claiming this is your own responsibility and refusing to cover.

It is of course prohibited in many jurisdictions. it's just not enforceable.

This is more aimed to warn pedestrians who wear ANC headphones. Should people be prohibited from wearing headphones while walking?

It is pedestrian who are wearing the ANC to remove the noise outside.