I got tired of waiting for this to be fixed and bought a 4TB SSD to put my user folders on; that way I could format it as APFS and it would fix the issue of not being able to turn on iCloud Drive.
Well…this has not gone well at all. Trying to house the user folders on the external SSD created absolute mayhem with permissions problems that could not be fixed (I'd correct the permissions and minutes later nothing would remember their settings…so I'd look at the permissions and they had all spontaneously changed again), all kinds of icon weirdness, and too many strange issues to list. I wiped and reinstalled the OS (Sonoma) about 4 times.
Found another thread talking about using an external SSD for the user home folders…and I've now been told that it simply can’t be done! Apparently the functionality for changing the path to user home folders that Apple provides in the Advanced Options in Users and Groups is badly broken and isn’t expected to be fixed.
So guys - if any of you are hoping to house your user folders anywhere other than the internal drive, let me spare you some pain and time. A level 10 dude told me that it didn’t matter what my four family members used the computer for or what our software requirements are, I shouldn’t have any problem putting all of us on the 1TB internal. He also told me that just because Apple provided the ability and option to move home folder paths from the MacOS GUI, we shouldn’t expect it to work properly, it doesn’t mean that Apple approves or supports using the feature, nor should they have to warn us that if we do it, it would be bad. 😳