The bug comes down to the MacOS Big Sur installer not checking if the Mac has the required free space available to carry out an upgrade. The upgrade runs into problems, and if that isn't bad enough, if the user's Mac was encrypted using FileVault, then the user is locked out of their data.
The bug has been explored extensively by Mr. Macintosh, outlining the problem, some possible solutions, along with a very informative and detailed video. The bug was narrowed down to an evil Goldilocks zone, where users had more than 13GB of free space, but less than 35.5GB.
The video is truly awesome work. Thank you Mr. Macintosh for your work!
The good news is that Apple has finally released an updated MacOS Big Sur 11.2.1 installer -- (20D75) -- that properly checks for the free space.
The fix has been confirmed by Mr. Macintosh.
What's the moral of this story?
Have a backup, and perhaps allow others -- who are braver and more foolhardy -- to go first. Also, check the system requirements and don't rely on the installer to check everything.
Oh, also, don't believe that whole "it just works" thing.