The request is JSON and contains at least these fields:..."prompt": "..."

Local SD (especially the earlier versions) is already uncensored, so they're effectively crippling it with additional spyware that phones home to tell Microsoft what you're doing and asking whether they approve of it. IMHO the invisible watermark isn't the worst part, but rather the fact that MS is logging every interaction you have with the model, which doesn't ever need to leave your machine.