TextEdit app behaving differently - TextEdit creates iCloud Drive folder

This just started and I have no idea why, except the only thing I did different was to sign out of iCloud and then back in.

All settings the same as before of what goes to my iCloud drive/iCloud etc.

I then wanted to create a "TEXT EDIT" note which I have done before.

What's different now is the following:

When I used to click my "TEXT EDIT" App, even with iCloud drive/icloud on, it would open a new doc window right away.

It no longer does this.

It now opens a window showing where to pick a file from, and if I want a new document, the bottom left has a "New document" button I can press to be able to type my note.

When I press that, it give me my new window to type my doc but also creates a "TEXT EDIT" File Folder in my iCloud drive.

When I look where my doc will save to, it says to this file in my iCloud Drive so I have to change it to Desktop (where I want it).

I did a few things to correct this file folder from creating in my iCloud drive but it keeps creating one so decided to turn iCloud and iCloud Drive off.

I then Clicked my "TEXT EDIT" app and got the new doc window like I always did before. (even when iCloud/iCloud Drive were on)

Turned iCloud drive back on, and when I click the app, I am back to square one.

Please tell me how to fix this... I see no setting for this at all.