Hi @Kothai Ramanathan ,
Welcome to Microsoft Q&A Platform.
1) Now though the validate activity output is showing the file in the folder as child items, the failure activity is getting fired. Why is this ?
Increase the timeout as 2seconds is less for the activity to fetch the file, please increase it to 2minutes as it is seems to take ~1minute to fetch in your scenario and check. It worked for me after doing the same as shown below.
2) though the timeout is set to 10 secs, it it timing out in about a minute (though in this case it should not have timed out).
Yes, able to reproduce this behavior as well and I observed that if timeout period is less than the fetching time from the blob, it will time out only after the fetching time. Also, there is slight variation in timeout Ex: when I set timeout as 10sec it timed out after 12sec and when I set timeout as 5sec it timed out after 8sec, I am checking with internal teams to confirm if this delay is because it includes the reach out time to blob as additional to 10seconds. I will confirm you once I hear back from them.
Hope this helps! Please let us know if scenario understanding is different or for more queries and we will be glad to assist.