I have had a reply from Microsoft OneDrive Support
The subject of the email was "2025Feb26 Web odsp-web-prod_2025-02-14.011 en-GB"
"Hello Mike,
Thank you for contacting OneDrive support. Hope this email finds you well!
We received your concern, and we will extend our best help to address your issue.
As per description, we understand that you are facing issue with shared folders showing as shortcut link in OneDrive local folder. We apologize for the inconvenience this may have caused. I would like to inform you that this is an ongoing issue and is reported to our engineering team.
We completely understand that this issue might be impacting your work. As a workaround for now, you can access the shared folder via OneDrive web to continue your workflow. The .url internet shortcuts will automatically convert back to a folder when the issue is resolved. The same has been updated in our article: Add and sync shared folders to OneDrive for home - Microsoft Support
Our engineering team is working diligently to resolve this issue. I assure you that we are giving it our utmost priority. Currently we do not have an ETA on this issue. Your patience and cooperation are highly appreciated during this time. Please know that we are committed to resolving this issue as quickly as possible.
Please confirm, if you have any other questions or queries regarding OneDrive case ID "#********" so, that we can assist you accordingly.
Thank you,
Sayantan D
Customer Service and Support | OneDrive
Working Hours: 04.00 - 13.00 (Pacific Daylight Time)"
I did not say anything about the version number in my support case (raised on Feb 26)
The subject looks very significant to me as it indicates the version of the server side component of OneDrive which is failing.
It corresponds with that reported by others here.