1. Open inventory
2. Place three rags in hand
3. Scroll over 3 rags in bag
4. Hold Circle to combine
5. inventory closes nothing is combined

1. Hold sewing kit or duct tape
2. scroll over damaged clothing(equipped and vicinity)
3. Hold to Combine and repair
4. Inventory closes no repairs happen

1. Hold Damaged gun in hand
2. scroll over repair kit (Vicinity, In inventory)
3. Hold circle to repair
4. Inventory closes nothing happens

1. Hold Sticks in hand
2. scroll over Rag/Bark/Rope
3. Hold circle to combine
4. Inventory closes nothing is combined

1. Chamber single round (taken from stack of 2+ rounds)
2. Remove round
3. now you have a single round that cannot be stacked

1. Place can opener in hand
2. Scroll over unopened can (in Inventory, Vicinity)
3. Hold Circle to combine and open can
4. Inventory closes, no canned food for you.

5a) Take two minutes to aim on can directly to open
or
5b) Die of Starvation because the can fell through the world when you put it down. (happens sometimes but that is a whole other issue lol)

Before 1.20 the combine option through the inventory menu with held, vicinity and equipped items was fast, easy and user friendly. I hope the current state is an unintended interaction if not I am afraid the immersion and play-ability is greatly affected at least for me.

Main Issue:
You can no longer repair items in your hand, on the ground or equipped from the inventory menu.
You can't stack items
You can't interact with items in the vicinity/inventory menus.
(example)You can't open a can on the ground with a can opener in your hand using the vicinity menu.
(Hold) to combine is not working as intended.

As a note, the vicinity menu for crafting, combining and repairs is the most user friendly way of getting things done. Placing items on the ground and looking at them to effect repairs etc (opening cans, interacting with bullets) can be tedious while using a controller. Also as a side note, console feedback needs a definition between mouse and keyboard play and controllers.