Actually, when you choose the "Unread Mail only" option it removed the ability to pick which mailbox to designate, so it chose all mail messages, even those I had in imported mailboxes and are offline. I had to go in and mark all of those as "read" even though they were offline, (during the "archive" process it remarked all of them as unread) so that I could eliminate them as a source of the problem.
This issue occured after I had to do a clean install of Lion a while back due to a problem with the OS install the first time around. I've just lived with it. I just upgraded to iOS6 on my iPhone and was building the courage to install Mountain Lion. I figured I should resolve the iCloud problem before I went down that road.
I want to avoid having to go through the clean install process again.