It appears you are using firmware that is not from the official OpenWrt project.
When using forks/offshoots/vendor-specific builds that are "based on OpenWrt", there may be many differences compared to the official versions (hosted by OpenWrt.org). Some of these customizations may fundamentally change the way that OpenWrt works. You might need help from people with specific/specialized knowledge about the firmware you are using, so it is possible that advice you get here may not be useful.
Ask for help from the maintainer(s) or user community of the specific firmware that you are using.
Provide the source code for the firmware so that users on this forum can understand how your firmware works (OpenWrt forum users are volunteers, so somebody might look at the code if they have time and are interested in your issue).
If you believe that this specific issue is common to generic/official OpenWrt and/or the maintainers of your build have indicated as such, please feel free to clarify.
That makes absolutely no sense.
not with ## (comment mark) included, or without it.
It would mean that "please preserve /bin/busybox binary in the sysupgrade" process, causing it 99% certainly to be different that the new busybox included in the new firmware, and being 98% certainly incompatible.
That sounds like a sure recipe to brick the router.
If you flashed without keeping settings, you have already cleared the overlay. It gets automatically regenerated from scratch in a normal sysupgrade, but it may then be populated with the backuped settings if you did the sysupgrade with keeping settings.
If you have a running official OpenWrt, the easiest way t wipe overlay is to sysupgrade again with a sysupgrade image without keeping settings.