I just wanted to follow up these comments here, because I just spent all morning speaking to Microsoft support, who had no idea what I was talking about.
I first encountered this problem when I did exactly as I was told by the onedrive app, upgrade my external drive to APFS.
Now, all my files are sync'd to my internal drive, which is way too small to host them all.
I'm about to re-format the drive to HFS in the hope that this disables this new 'feature', but I wish I'd known what this 'upgraded experience' was going to do before I started all this.
**EDIT** - Re-formatting my drive to HFS was not successful. Now, Onedrive blocks users from setting external drives as the onedrive location if they're not formatted to APFS. And if it's APFS, we're stuck with this on-demand nonsense. Great work, thanks.
A terrible idea and a massive waste of time!