iCloud storage problem

I believe the 128 GB refers to the amount of local device storage that your iPhone has.

The numbers for iCloud Drive and Photos might reflect the total amount of data that you have stored in iCloud. You can choose a Photos setting to "Optimize iPhone Storage" (which lets Photos substitute thumbnails for full-size photos on your phone when your phone starts to run out of room). iCloud Drive might cache some recently-used files on your iPhone but presumably does not cache everything that is in iCloud, all of the time.

What's the difference between device storage and iCloud storage? - Apple Support

I’m having this problem too since iOS 17, as you say it seems like some kind of bug