In Windows XP, if the system wasn't activated after the initial grace period, you couldn't log in at all. That was obviously a bad UX when something has gone wrong.
Windows Vista and Windows 7 loosened things - allowing you to log in and use basic functionality.
Later versions of Windows (including Windows 10 and Windows 11) are more or less fully functional without activation (or even inputting a product key). Some personalisation features are disabled and you will have a watermark on the desktop, but other than that it's pretty normal. There is no time limit for this, unlike some of the free virtual machine images Microsoft provides for web dev testing purposes.
The only justification I can see is that it does provide a better user experience if there's an activation problem. With Windows 10 and 11 being free upgrades for a huge range of consumers, they know that most people have a licence anyway.
Windows 10 and 11 have also emphasised the digital licence model - installing without a product key. This requires that the system is functional without activation, so that you can get online to verify the digital licence.