For those who have joined this conversation, but are daunted by the 239 pages of comments and so don't read through everything, this needs to be repeated - this problem is on the Microsoft server side. The "work around" and "hacks" aren't going to solve your long term problems, only MS can do that.
WHAT HAPPENED:
Around May/June of 2024, MS started deploying a new version of the OneDrive servers. The old system is V1.0, and the new one is V2.0.
They began slowly migrating people.
THE ISSUE
The sharing of folders and documents with local copies is incompatible between the two systems. Did MS know this? It's hard to tell, however, they never admitted that this was the problem, instead leaving people wondering why it's taken them 1 year to solve a problem that is critical to so many people.
The number of reported cases increased as the migration to V2.0 progressed. In particular, for people, say, on a family account, there is no coordination between when family members migrate.
THE SOLUTION
There isn't one except to wait until everyone you share with or shares with you has been migrated.
When everyone is migrated, those useless links should turn back into real files. Unfortunately, that means up to 300 million people's OneDrives downloading all those files again. The time to download all of that is probably not going to be short, as the bottleneck will be MS's own servers.
Given this fiasco, you can either jump ship on Office + OneDrive and move to alternative Office and Cloud solutions, or wait this out.