Hello, try changing the iCloud Photos folder path outside of the OneDrive pictures folder.
- Create a new folder on another partition for example D:\iCloud Pictures. (Turn off Icloud Photos Syncing)
- Open iCloud for Windows, go to Photos then Options and change the location to D:\iCloud Pictures.
- In File Explorer go to C:\Users\YourUsername\Pictures\iCloud Photos\Downloads Select all photos and copy them to D:\iCloud Pictures. (Turn on iCloud Sync again)
- After confirming the files copied successfully, delete the originals in C:\Users\YourUsername\Pictures\iCloud Photos\Downloads
- Take a picture on your iPhone wait for it to sync and check if it appears in D:\iCloud Pictures.
- Restart your computer.
- Enable OneDrive PC folder backup and it will no longer include your iCloud Photos folder.
See if it works.