Hey @gainesdj!
I can see how this could be frustrating. I wanted to let you know that I am not having the same experience. The process I used was creating an assignment, setting the Submission Type to external tool. Clicking the Find button, I located and selected Studio. I selected the Studio video I wanted to use and selected the quiz to include with the assignment. Once I saved and published it, I checked with a student account and once the video started to play, I was able to expand the video to show on full screen as a student.
I am wondering if there is a setting that your institution has purposefully or inadvertently set to not allow the video to be played full screen. In full transparency, I am not sure there is a setting for this. Just a thought. Have you considered starting a Support Ticket with Canvas? Support can often look under the hood of your courses and see if there might be something that is hindering the ability to show the videos full screen.
If you are not sure how to create a support ticket, click on the Help (question mark) icon on the left side of your Canvas window and select Report a Problem. (You may also have other options depending on what your institution has subscribed to regarding support.)
Good luck resolving this!