If everything is encrypted, what use would it be to Microsoft (or anyone else for that matter) if you put it in the cloud? Or are you saying that web-based storage and/or apps are essentially insecure and anything you do with them can be seen by whoever is hosting them?
Hard drive encryption has been with us for quite some time. It is commonly used in commercial organisations, though apparently the MOD are less than keen, leading to embarrassing leaks of information. It should be seen as a positive security item, stopping all but the originating user being able to get at a document on a hard drive. Home users, though, are unlikely to understand its importance, or the requirement for backup.
Microsoft want you to store your documents on their cloud environment - OneDrive - rather than locally. The "free" version of Office will do nothing else. Rent Office 365, and MS throw in some OneDrive space. They let you have a little space for "free", but charge a monthly fee for sensible amounts. They used to have an "unlimited" option, but chopped this drastically about 5 years ago.
Documents on OneDrive are NOT encrypted, but passed across the internet in their native form, so if you don't want MS looking inside them, you'll need to encrypt them manually first with something like PGP. Just copying from an encrypted hard drive would decrypt it automatically before it left your machine.
Once the data is on their servers, Microsoft can analyse it at leisure, just as Google do with their Google Docs, Gmail, Android and Chromebook environments. They sell you and your information to advertisers. If you have spreadsheets of marriages and burials, as many of us do, expect to see more adverts for wedding venues and funeral directors. It doesn't matter whether you use Microsoft's browser or not, because they know the machine you are using and your identity.
Nevertheless, I personally wouldn't upload anything containing my full name, phone numbers, email, or postal address.
No need. They already HAVE all that. You ticked the box when you installed Microsoft software years ago.
It is in their financial interest to collect all this stuff, because advertisers pay them for it. They paid good money to have politicians sign your rights away, and they won't give up their main revenue stream.
By the way, the MS website now officially states "Microsoft account and internet connectivity required for setup for Windows 11 Home".