I'm confused. In OneDrive, under the OneDrive Settings/Advanced Settings you no longer have Files on Demand? When OFF you end up having everything on your local computer as well as in the cloud. Perhaps your computer doesn't have enough disk space for it to be active????
Save disk space with OneDrive Files On-Demand for Windows - Microsoft Support
in that post it also says:
Why don’t I see the Files On-Demand options in OneDrive settings?
First, make sure you don't have Windows Information Protection (WIP), previously known as enterprise data protection (EDP) configured on your computer. Files On-Demand is not yet supported when WIP is enabled.
If you aren't seeing the Files On-Demand options, the latest version of OneDrive hasn't rolled out to you yet. Here's how to get the latest version of OneDrive.
- Make sure you're running Windows 10 Fall Creators Update (version 16299.15 or later).
- Download and install the latest version of OneDrive that's rolling out with the Windows 10 Fall Creators Update.
- Restart your computer.
- After your computer restarts, select the Start button, search for “OneDrive”, and then select the OneDrive desktop app.
- When OneDrive Setup starts, enter your personal account, or your work or school account, and then select Sign in.
- Follow the instructions to Turn on Files On-Demand.