I had a similar situation and sent the following support request to Dropbox. I have a hunch this may be due to SymLinks (i.e. a symbolic link used to point to a file or directory) since I saw that Dropbox now uses "/Users/myUserAccount/Library/CloudStorage/Dropbox" and after the upgrade you cannot change the location, even if you wanted to, to a local, SAN, or supported SMB location. I'm not about to start messing with the pList or other metadata.
I'm a long-time Dropbox user, and pay for Plus Plan. I've never had any issue with anything until today when I upgraded the app on my MacBook Air M1, 2020 model, running macOS Ventura Version 13.0.1. Strangely, the version remained at v167.4.4719 after the upgrade, but things went downhill quickly.
After the upgrade, I attempted to open a Final Cut Pro file that I had never had any problems with and was given the message "This document cannot be opened from iCloud Drive. Copy the document to a local, SAN, or supported SMB location, then try again”.
I looked into this more and discovered that Dropbox now maps to “/Users/myUserAccount/Library/CloudStorage/Dropbox”. I cannot change the location via the dropbox app anymore. I'm basically stuck and will have to restore my Mac image from a backup. Better yet, I’ll just rebuild my machine to ensure Dropbox doesn’t leave any metadata behind.
This "upgrade" really broke things, and if I can't get it fixed, I'm afraid I'll need to cancel my business. I hope it doesn't come to that.
Thanks so much for your help in advance.