Hi everyone, I've just found this thread and got a workaround. Per the below article, the installed Office instance needs to be O365ProPlusRetail:
Desktop app option is missing when editing Office files in Teams - Microsoft Teams | Microsoft Learn
The instructions in that article say to run the following in PowerShell:
$officeLicenseRoot = New-Object -TypeName PSObject $officeLicenseRoot | Add-Member -MemberType NoteProperty -Name License -Value $(Get-ItemPropertyValue -Path 'HKLM:\Software\Microsoft\Office\ClickToRun\Configuration' -Name ProductReleaseIds) Write-Host $officeLicenseRoot
If the response doesn't contain "O365ProPlusRetail" then that's probably the issue as it was in my case, even if you haven't changed anything and the Classic Teams client has and continues to work as expected. Rather than spend the afternoon building a new installation package for the "correct" edition, I updated the following registry key:
HKEY_LOCAL_MACHINE\SOFTWARE\Microsoft\Office\ClickToRun\Configuration\
The value "ProductReleaseIds" had its data changed from "O365BusinessRetail" to "O365ProPlusRetail" and I was immediately able to select "Native App" in Teams for Office files, no need to restart anything.
While this may cause issues in the future, it's very simple to change the value back and forth until Microsoft patches this functionality back.