All of a sudden can't open .dmg files on Monterey

My MacBook Pro 13" M1 crashed last night, I think because I switched off my external USB-C monitor. I logged in as normal but since then I am not able to open .dmg files. When I try to open using DiskImageMounter.app, nothing at all happens, no errors, nothing. When I try to open from the terminal, it just hangs for a while then says operation timed out:

$ hdiutil attach GoogleDrive.dmg
hdiutil: attach failed - Operation timed out

If I try to ctrl+c while it's trying to mount, I see this:

$ hdiutil attach DropboxInstaller.dmg # tried with different dmgs
^Ccanceling...^[[A2022-07-19 13:59:29.626 hdiutil[1971:21611] -[DIHelperProxy(Thread) waitForHelperDone] timed out waiting for helper registration

Strangely, it does show in diskutil:

$ diskutil list
...

/dev/disk4 (disk image):
   #:                       TYPE NAME                    SIZE       IDENTIFIER
   0:     Apple_partition_scheme                        +334.0 MB   disk4
   1:        Apple_partition_map                         32.3 KB    disk4s1
   2:                  Apple_HFS Install Google Drive    334.0 MB   disk4s2
                    (free space)                         291.3 GB   -

However, trying to eject it, it also just hangs until saying timed out.

$ diskutil eject /dev/disk4
Volume timed out while waiting to eject

What I tried so far: 1. Reboot several times 2. Create another admin account - didn't help, same issue. 3. Boot in safe mode, then it just says resource not available, not sure you can open dmg files in safe mode! 4. Did "first aid" of the Mac drive in disk utility (no errors found) 5. Tried different dmg files, including ones that worked yesterday, same result. I just did a clean install of my MacOS a few days ago, so there's not much third party apps except things like Slack, Chrome. Any ideas?