I know this thread is old but I have this issue on Windows 10 PRO Build 22H2 19045.5693. I followed much of the advice on this thread but most produced no results.
After disabling the OD Desktop sync the issue seemed to have been solved. After restoring the desktop to it's former glory the issue persisted. It would appear the number items on the desktop also causes the issue. The maximum number of icons I can have is 99. Anything over this and I get the select folder dialog issue.
In my setup I have 168 icons. Using 2x 4K monitors easily allows for many more.
Anyone know how to get the system to accept more icons?