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It seems like you might have some mismatch either in the version of SF Input tool on your local machine vs. server, or the registry needs to be changed on *every Server worker node*, and your local machine.
If you don't find anything, raise a ticket with Support. They have been very helpful on this topic when I approached them at different steps along the way to troubleshoot what was going wrong. My guess is they will immediately know what causes this problem.
I received a response from Alteryx support re: what does "hide" encryption mean. I wanted to post to this thread for future reference:
By default, the Alteryx Products published Python SDK Data Connector Tools (Azure Data Lake, Google BigQuery, OneDrive, Salesforce Input, etc.) utilize Encrypt for Machine (follow link below for additional details) credential encryption. With this encryption applied, the decryption of the credentials can only occur on the device generating the encrypted credentials.
The PythonAllowHideEncryption registry key permits the supported Alteryx Products Python SDK Data Connector Tools to be successfully ran on the Gallery. This registry entry, required both on the local Designer machine and the Server machines(s), updates the encryption method to Hide when publishing to the Gallery.