Nah, that was not it. That would have caused trouble as that would mean Esc is triggered everytime I press Caps, which would mean it would throw me out of input fields.
But hey, what gives, I finally made it work and somehow it is my original solution.
The only change I made was add a 0.2s delay for the Keyboard Input Block key sequence, meaning if Caps Lock is pressed and released, it sends Escape . If Caps Lock is held for 0.2s with no further input, Keyboard Input is Blocked.
I am also testing double tapping Shift to send Caps Lock instead.