Just thought I'd share my experience over the last week or so. After a lot of lost time, trial and error and random online tips, things are finally back on track for me.
I have around 500gb backed up but selectively store around 150gb of current original files on my iMac locally and regularly sync those current files with OneDrive. It's important I have original files stored locally as I clone my synced files to multiple external drives as well. The remaining archived files I also have backed up on the external drives.
What confused me was how the multiple locations worked and how to work with them. After the update, I found the OneDrive cloud location contained empty symlinks but the original full files were located in a cache location within the system here... /Users/USERNAME/Library/Group Containers/UBF8T346G9.OneDriveSyncClientSuite/OneDrive.noindex/OneDrive.
Clicking the cloud icon in the OneDrive cloud location seemed to do nothing to 'download' the file (even though they were already downloaded). After a bit of testing with temp files as to the new behaviour of the app, I made sure the OneDrive app wasn't running, then moved the original folders out of the cache location to the desktop, then deleted the empty files in the OneDrive cloud location. Then I moved all my files to the OneDrive cloud location and saw how the cache location 'duplicated' the files and folders straight away although my hard drive size didn't change.
At that point, making sure my file and folder structure matched everything in the cloud, I started OneDrive and there was no uploading or downloading, just updating. Which took awhile. It's here I could right mouse click on each folder and select 'Always keep on this device'. It took quite awhile before the little grey ticks appeared.
I also sync selected folders to my MacBook for if I'm working remotely. It was here that clicking the cloud icon to 'download' original files worked. Maybe because my MacBook is an M1 and my iMac is a 2017 Intel? In reality I wasn't downloading, more duplicating the original stored in the system cache. Again, the drive space didn't change which is good.
I noticed that with the app running, it seemed at times nothing was happening, however Activity Monitor was going through the roof. In reality it was doing stuff in the background. Now things have all finally updated, running the app is as per normal.
I use Forklift to search and manage files, which I think runs off Spotlight, and the only way I could find my files was to search the cache folder. Now the full originals are in the cloud location folder, Forklift/Spotlight works fine in the cloud location.
Some files wouldn't save, such as appending a pdf. It would create a duplicate. This was when I was originally working in the cache folder. Now that I'm working with original files in the cloud location, these types of files are saving fine.
For me, performance is good now, so everything seems ok. But the time it's taken me to get to this point has been crippling. So what if this change was posted online prior? Unless we stumble on it, how would we know? A simple direct email to all Mac users with a clear message as to what was going to happen and how to deal with it would not have been hard surely? Maybe it would have avoided the bad feeling toward MS and lost customers along the way.