I've been working on a block theme as a base for several of my sites this year.
How are people implementing custom designs using the navigation block? Or are you just ditching the navigation block, and if so, for what?
Basic styling is okay, but even simple things like trying to implement a CSS transition, or a toggle action icon, have become nightmarish.
Generally speaking, block themes have been…. unenjoyable. I blamed it on skill issues for a while, or maybe attachment to "classic" themes (being an old-timey WP developer) – but I'm starting to think it's actually pretty awful.

WP FSE navigation is the worst. I want to embrace FSE – but there is no good mega menu capabilities natively. I have found what looks to be a good 3rd party block – but i dont the whole lib and an annual fee. In short – I wouldn’t take an FSE theme to a large client until they adress the very limited navigation block.
2 ways, the first is just working within the limitations and accepting that the nav block is only so co configurable out of the box. Most designs can be modified to adapt to it. The second is just build a custom block. It’s trivial to build a block with a drop down to select a classic menu, and render via php to your hearts content. You just have to register a menu in your theme and the classic menu option under appearance should be available.
We use the block editor, but we do headers and footers the way we did before FSE came out.
Custom block that’s uses wp_nav_menu()