From your testproject all I noticed was mostly a bit of sub-pixel jittering, nothing like in the video you posted. But when I unlock the framerate it gets really bad and looks kinda like in your video. I'm just on a 60hz screen right now so maybe you have a higher hz screen and that's why it's worse?
Anyway, this is not a problem of the physics behavior btw. The same thing happens also with the 8 direction behavior and even with custom event logic (including the camera scroll with events) I could maybe guess it has something to do with the mouse cursor? But this seems to be a deeper issue than just some quirk of the physics behavior.
Perhaps the order in which the events go through has something to do with it, I tried reordering but to no avail. It's possibly a complex combination of setting positions. The player moves, the cursor moves, the helper moves somewhere between, then the screen scroll moves, which also kind of moves the cursor position(?) and something somewhere goes bonkers.