Just to confirm, at the time of posting:
Regardless of Office Sync opt-out settings, all Office 2016 applications are exhibiting one of two
opposite behaviours when opening and saving files directly from / to a local instance of a OneDrive folder,
depending on whether the file is created inside or outside
of that OneDrive folder:
Steps to reproduce:
Case 1: Office file is created outside of the local instance of a OneDrive folder and moved into it.
1.) Create and save an Office document in any local folder outside of the local instance of a OneDrive folder.
2.) Using Windows Explorer, move the file into the local instance of a OneDrive folder.
3.) Open the file <- Only the local instance is accessed, not the online instance.
4.) Save the file <- Only the local instance is accessed, not the online instance.
This is the expected behaviour: all syncing is performed as a background task by OneDrive.exe, not the Office application.
Case 2: Office file is created within the local instance of a OneDrive folder.
1.) Create and save an Office document directly within the local instance of a OneDrive folder.
2.) Close the file.
3.) Open the file <- Only the online instance is accessed, not the local instance.
4.) Save the file <- Only the online instance is accessed, not the local instance.
This is completely undesired behaviour. Office Sync opt-out settings are being ignored and all syncing is being performed at the time of opening and saving by the Office application, not OneDrive.exe.
I'd just like to confirm that what Jeff Pollard has described is exactly precisely on point. Thanks so much for such clarity Jeff.
For those who for some reason don't want to delete the FileCoAuth.exe file, a temporary workaround I found useful for me, while Microsoft fixes this issue, has been to cut and paste my problematic file(s) from OneDrive to desktop then back from desktop to OneDrive
folder → issue fixed (for that single file). Although, if you have no particular reason to keep FileCoAuth.exe, deleting it is probably a better workaround for the moment.