Hi, just wanted to add that I'm having this problem too, not only with the Files app itself, but with any app that uses the Files app interface framework to access/browse files on iOS. Dropbox appears to be the only cloud service affected in this way.
Same exact issue on my end. Long hold on folder or file in the files app, select favorite. On the "browse" tab it appears under the favorites category. Leave the app and return, and it is missing. Go back to folder and you can no longer unfavorite so it is stuck.
Have been having this issue for over a year. Would love for it to finally be fixed.
I had the same problem and with input from apple support tech, I figured out how to get around issue and all is good.
First, move the Dropbox (or any other cloud-based folder) into the favorites of the files app. THEN, click edit at the top and uncheck Dropbox. Minimize and then unminimize the files app; click edit and reconnect Dropbox again. Magically whatever you inserted into favorites you will immediately see populate. This also works if you want to change the positioning of a folder within favorites. Just move the folder in favorites to the position you want (for example at the top or bottom of the list) by clicking on edit, etc. Then go through the same process listed above.
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