Don’t ever mix backups from different computers together in the same folder unless you use the –prefix option to make them distinguishable. Mixing old backup files from the same computer is totally standard provided Duplicati does the mix. In the example I gave, the 106 files after second backup sit side by side.
Losing terminology trail again. rsync is not a backup, so incremental and differential in a backup sense doesn’t exist. Mirror is a mirror. If retention settings delete a backup version, its blocks are now wasted space (EDIT: provided nothing that remains uses a given block), and that waste is reduced by periodic compact if available. Regardless, if original backup is OK, then mirror of original backup is OK. As noted, this leaves open the possibility of ransomware attack on files from first backup, but more sophisticated backup would still backup the damage to second backup provided that timing landed so that that could happen. The difference is that (assuming second backup wasn’t itself wiped out by ransomware), an earlier version of first-level backup could be restored, to get original source files. As mentioned, this is cumbersome and much slower, but you can do it if you wish.
I’m not following the retention settings concern at all. Can you explain the processing you have in mind, assuming you disagree with the processing I just described (all Duplicati process + mirror everything)?