ESP32-C3 Bluetooth Proxy invalid header: 0xffffffff

I found this topic after having issues configuring Bluetooth Proxy on LOLIN C3 Pico.

But the code found here would not work for me.
In the end I managed to get it to work, sharing here for others:

esphome:
  name: "esp32-xxxx"
  platformio_options: 
    board_build.flash_mode: dio 
    
esp32:
  board: esp32-c3-devkitm-1
  framework:
    type: esp-idf
    sdkconfig_options: 
      CONFIG_BT_BLE_42_FEATURES_SUPPORTED: y 
      CONFIG_BT_BLE_50_FEATURES_SUPPORTED: y
      CONFIG_ESP_TASK_WDT_TIMEOUT_S: "10" 
      variant: ESP32C3

ota:

wifi:
  ssid: !secret wifi_ssid
  password: !secret wifi_password

  # Enable fallback hotspot (captive portal) in case wifi connection fails
  ap:
    ssid: "Esphome-Web-xxxx"

esp32_ble_tracker: 
  scan_parameters: 
    active: true 

bluetooth_proxy: 
  active: true 

Adding

esp32_ble_tracker: 
  scan_parameters: 
    interval: 1100ms 
    window: 1100ms 

results in board loosing all connectivity - it cannot connect to wifi and I cannot connect to the fallback hotspot.

Credit goes to digiblur for the extra lines needed.