I think it’s a Shortcuts bug with values getting passed around when triggered from the Watch. I think you can also workaround it by using a variable step in-between such that the result of the dictate gets set in a variable, then the variable value used to create the draft.
That said, I think the below tip is a better solution for doing capture via the action button on a Ultra now that watchOS 11 remembers that you prefer dictation for text input and you don’t have to hit the mic button every time (and it runs all on the watch and doesn’t need the phone):