• Calling BindingOperations.SetBinding(...);, then targetObject.GetValue(targetProperty) will always return null, which then I tried to fix with a converter
• Above problem was fixed with a workaround to use converter inside binding, but then DependencyObject for items inside combobox item template always returns the same reference between different items, which means changing one property value via TargetObject.SetValue will change all of them

<ComboBox 
          ItemsSource="{Binding Source={providers:EnumItemsSourceProvider EnumType={x:Type enums:DummyEnum}}}"
          SelectedItem="{Binding SelectedDummyEnum}">
    <ComboBox.ItemTemplate>
        <DataTemplate>
            <TextBlock HorizontalAlignment="Center"
                       Text="{noesis:Loc Binding={Binding .}}" />
        </DataTemplate>
    </ComboBox.ItemTemplate>
</ComboBox>

    <sys:String x:Key="FirstEnum">Translate First Enum</sys:String>
    <sys:String x:Key="SecondEnum">Translate Second Enum</sys:String>
    <sys:String x:Key="ThirdEnum">Translate Third Enum</sys:String>

<DataTemplate>
  <TextBlock HorizontalAlignment="Center" Text="{Binding .}" />
</DataTemplate>

when your MarkupExtension returns this, it does not get triggered again for items inside ItemTemplate

Triggered how? The ProvideValue method is only called by the XAML parser when it finds the markup extension assigned to the property.

public override object ProvideValue(IServiceProvider serviceProvider)
{
    var valueTarget = serviceProvider as IProvideValueTarget;
    if (valueTarget == null)
    {
        return null;
    }

    var targetObject = valueTarget.TargetObject as DependencyObject;
    
    // If inside template, target object will be null and WPF will call ProvideValue again when template is applied
    if (targetObject == null)
    {
        return this;
    }
    
    DependencyProperty targetProperty = (DependencyProperty)valueTarget.TargetProperty;
    return targetObject.ProvideValue(targetProperty);
}

• On startup when ComboBox is not open it runs ProvideValue once
• Then when you open combobox it runs ProvideValue for each element inside of it

• On startup it runs once ProvideValue, then it is not run anymore when opening combobox

Regarding the problems you found modifying the LocExtension I think our XAML parser does not correctly support properties of type Binding that are not DependencyProperty. Could you please report this in our bugtracker?

Regarding the issue with ProvideValue not being called when templates are applied I understand now what is happening. This is a limitation of our current implementation of templates. Could you please report this as a separate issue?