Assuming it’s the same issue as this person had (their debug log output certainly looks similar to yours, at the end, with the 500 error), it may be related to the remote builder:
Installing docker locally would certainly avoid needing to use a remote builder. However if you’d prefer to, you could try (if you haven’t already) destroying your current remote builder. A new one will be made automatically on your next deploy. It’s not worth doing that more than once but it may fix random, temporary issues, if that particular one happens to have something wrong. You can see its name using fly apps list and then fly destroy its-name to delete it.
Else it’s not that, clearly, and something Fly needs to investigate.