Inside the new Files On-Demand Experience on macOS

Curiously, I'm using the 12.3 beta and I've managed to keep onedrive working in a limbo state where integration with Finder is not complete, but my files remain sync'd as desired (or expected).

For reference, I keep my onedrive folder on an external APFS formatted drive. Onedrive warns me that it "couldn't upgrade my files on demand experience" every time I start my computer.

Using Finder, the Onedrive folder that appears under 'locations' in the sidebar is clearly pointing towards this elusive location that onedrive now prefers (~/libary/cloudstorage). Files marked as 'always keep on device' are somehow not on the device, because the cloud icon prompts me to download them, and yet definitely on the device, because navigating to the folder on my external hard drive shows me the files are certainly there. 

If I move, or modify, a file on the external drive location the changes will be synchronised and reflected in the cloud based version of the file. If I create a new file in that location, it will be uploaded to the cloud based storage. 

What it won't be, is shown inside the obscure folder in my home folder, or updated in the 'locations' version of my onedrive. 

What this suggests to me is that it is not necessary to have files on demand permanently switched on for any other reason than 'enhanced' Finder integration. So onedrive can appear in 'locations' like iCloud storage does.

This is basically a cosmetic difference, but also enables a few context menus.

I just want to state again that I can do without a cosmetic change to my onedrive experience, and forsake a few context menus in order to keep the service working properly.

Paying business customers (especially) should not be subject to workflow breaking changes for the sake of MS's desire to affect cosmetic changes. You just can't treat IT clients like that and get away with it, surely?