This is expected behavior as of azure-ai-ml version 1.7.0. Code snapshot creation was transitioned from directory-based within a container to container-based within a datastore in order to accommodate users with fine RBAC (Resource Based Access Control) policies that don't permit container creation for all users of a workspace. The change wasn't announced in the 1.7.0 CHANGELOG; however, given strong user feedback and confusion about the change, we will be adding it to the CHANGELOG retroactively to create clarity: https://github.com/Azure/azure-sdk-for-python/pull/34332.
The AzureML SDK team really appreciates the feedback and are looking to see how we can move forward in a way that maintains the RBAC benefits of the change while addressing UX concerns.