MBP 2016 is Monterey Factory reset ERASE Disk problem

I have seen the items on the left pane of Disk Utility show up incorrectly & out of order before, but I've never seen quite like you have shown with the partition tab (not sure I looked though). When it happened to me I had to delete/erase items (which ever ones that Disk Utility would allow me to delete) until I could select the physical SSD to erase.

You may need to first click "Unmount" for every item listed for the internal SSD before it may allow you to do anything as well. If you still cannot erase the SSD, then we can try using the command line to write zeroes to the beginning of the SSD to destroy the partition table since Disk Utility just cannot handle a drive where something is not quite what it expects.

Just out of curiosity, is this the USB-C model? And if so, is it the Touchbar or non-Touchbar model?

If you cannot get Disk Utility to Erase or Partition that first top item listed under Internal, then it appears that drive will not be usable.

You can try to install Monterey, but I doubt it will be successful. The drive must be in working order.

As @HWTech posted above, there may be something to try from Terminal.

Also, you might try installing the OS on an external ssd if you have one available to work with. If you can do that you may startup the Mac from that and maybe run some other diagnostics and/or utilities against the internal drive to see if this can be corrected

Launch the Terminal app from the Utility menu on the menubar. Issue the following command to get the device identifier for the physical internal SSD:

diskutil  list  internal  physical

Usually the device identifier will be "disk0", but if the internal SSD is faulty, then it could be some other identifier.

Once you have the correct device identifier for the internal physical Apple SSD, you will use the following command to write zeroes to the beginning of the SSD to destroy the partition table. I'm using the device identifier "disk0" here, but if your SSD is using a different identifier, then replace "disk0" in the commands with the correct device identifier for your SSD. It is best if you disconnect all other external devices from the computer so that you do not accidentally erase the wrong drive. There are no safety nets when using the command line.

Make sure all volumes are unmounted on the drive you wish to erase by using the following command (example here is for the drive associated with device identifier "disk0"):

diskutil  unmountDisk  disk0

Write zeroes to the beginning of the drive associated with device identifier "disk0":

dd  if=/dev/zero  of=/dev/disk0  bs=100m  count=10

If these command complete successfully, then you can quit the Terminal app and relaunch the Disk Utility app. Select the physical SSD and erase it as GUID partition and APFS (top option). You may need to click "View" within Disk Utility and select "Show All Devices" before the physical drives appear on the left pane of Disk Utility.

In Disk Utility, select that top entry - Apple SSD...Media – then select Partition in the tool bar.

Click the Format selector and choose Mac OS Extended - this should enable the 'Apply' button.

Now select APFS and click 'Apply' and let Disk Utility do its thing.

Note that the above can only be done if booted from an external drive or booted in Recovery mode.

In that partitioning screen, select the partition on the left and then the subtract ( – ) button below. Then click Apply again. The idea is to delete that second partition.

You may also try deleting the APFS volume that resides in Container disk3 on the first DU screen, then try to partition the drive again after that.

Yes, on Disk Utility's main window you will need to select the partition listed immediately above "Container disk3" and then click "Mount".

You might then be able to return to the Partition window and remove the left partition. Or you may be able to select the top most internal device and Erase it.