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I have my VFD wired similarly to the diagram in the AXBB-E manual. The A01 analog output controls the frequency perfectly. However the isolated output sends a PWM signal instead of a clean "on/off" when M3 is turned on/off. This results in the spindle not starting at lower frequencies.
When I tried using the "Direction" config it appears to toggle with M4 not M3. What am I missing here???

If the isolated output send a PWM signal then that output is configured for spindle PWM probably.
Check your configuration.
You should configure that output as spindle relay and not spindle pwm pin.