Issue
If your Windows stylus / pen is not working in ArcSite while on a Microsoft Surface or Windows device, the issue may be related to a setting that needs to be toggled off in Microsoft Pen & Ink Settings within the Bluetooth settings menu.
Steps
Open Windows Start Menu
Open Settings app
Open the Bluetooth and Devices option
Open the Pen & Windows Ink option
Open the Additional Pen Setting option
Ensure the the Let me use my pen as a mouse option is toggled off
Recorded Evidence
The following video provides a full demonstration of the steps required to fix the issue: