Cloud drive integration (files on-demand) was a poll on handling cloud-only files.
Your preference is to exclude them, which looks like deletes, so cause problems.
Duplicati downloads OneDrive online only files #3411 similarly wanted an ignore.
Disable file attribute masking on Windows 10 #3998 provided that by disabling a
Windows compatibility feature that removed visibility of certain unusual attributes.
Some bits in the file attributes are masked out #8315 is a PowerShell issue, listing attributes including Offline, Pinned, Unpinned.
Expose file attributes of OneDrive placeholders #8745 changed PowerShell to use PHCM_EXPOSE_PLACEHOLDERS which is the same thing that Duplicati did to unmask.
Placeholder files for Windows 10 OneDrive are not documented #1484 asks docs to document the use
RtlSetProcessPlaceholderCompatibilityMode function (ntifs.h) and others cover, although quite vaguely
Some bits in the file attributes are masked out #27976 complained to dotnet, who said it’s PowerShell
So there’s more Files on Demand messiness. It’s unclear to me what the solution to this usage may be. Personally, I like to have backups of my cloud files, because they can be lost to malware or by provider.