I set it to my dedicated Sign In page expecting that when someone clicks the Login button in Discourse they will be redirected to the
/sign-inpage in WP
I have confirmed that is indeed how the setting is supposed to work.
Anyway this issue is caused by the membership plugin we are using called Memberium that also manages user auths. We have resolved it temporarily by creating a custom WP plugin to patch redirects and URL encoding while the official plugin devs work on an official fix.
Cheers!