Dear Rick,
I do a test and I can't reproduce such an issue in our environment.
Please first check whether you have done the following.
- Contact the global administrator and let him go to the Microsoft 365 admin center>Settings>Org settings>SharePoint>check whether the sharing setting is set to New and existing guests and let him go to the SharePoint admin center>click on the affected sites>Sharing>check whether the sharing setting on the site level matches the organization level.
- Make sure that you are using the People you specify can edit type when sharing a folder or a file.
If yes, when sharing a folder or file, I suggest you use Search directory instead of the pop-up window to see and let us know the result.
Best Regards,
Cliff