This behavior is tied to how Windows 11 handles cloud‑backed storage like OneDrive when using multiple monitors. Drag‑and‑drop across screens works normally for local files, but when a file is marked “cloud‑only” (not yet downloaded to disk), Explorer cannot move it between display contexts because the shell extension requires a local handle. That’s why you see the limitation only in cloud mode.
The reliable workaround is to mark the file as “Always keep on this device” in OneDrive, which forces a local copy to be available. Once the file is resident on disk, drag‑and‑drop across monitors functions normally. Alternatively, you can copy/paste instead of drag, but that’s less seamless. Microsoft has acknowledged intermittent issues with drag operations on cloud placeholders in Windows 11, and fixes are being rolled out in cumulative updates. Keeping your system fully patched and OneDrive client updated is important, but until the fix is finalized, the only stable method is ensuring files are locally available before dragging them between screens.