Cursor rules not working - 0.46.11

Anyone have issue with .cursorrules? Cursor cannot read the rules for some reason and keeps repeating that it cannot access the file and its restricted. I have indexed although there is nothing to index. I haven’t even started to code but wanted to make sure Cursor understands everything before I start. I am completely blocked.

I don’t want to start a project without this working. The Agent goes off rails so many times even with rules, i can only imaging i will end up spending 2 days developing something only for it to screw things completely.