Microsoft released the latest Windows 11 Insider build earlier today on the Canary channel. The new build has several new features and improvements including FAT32 and other File System improvements.
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After users began complaining that the latest OneDrive update doesn't work on non-NTFS file systems, Microsoft issued a statement today that said that this was indeed done deliberately.
The latest update for Microsoft's OneDrive sync client for Windows doesn't support any file systems other than NTFS. It's unclear if this is permanent, or if it will be fixed at a later date.
