Excited to report that I got my Retrospect backups fixed now as well !!
So, disabling the "Save space and download files as you use them" setting did not work for me. So in addition to that, I tried disabling OneDrive altogether (Unlink PC/account and then remove the entire OneDrive folder) and then linking my account again which then again downloaded all files. The next Retrospect scheduled (proactive actually) run then succeeded with 0 errors or warnings ! This worked now on 2 machines already, so will try kids laptop next, but pretty confident this will work as well.
Thanks to the folks active in this thread !