You were on to rc19 by the time I updated. For that version, I now get this behaviour:

Folder on local drive, with Git repo: works as it should, with changed/untracked files displayed in file list.

Folder on local drive, no Git repo: new alert is displayed, the file list does not change,

Folder on iCloud drive, with Git repo: button is still a no-op

Folder on iCloud drive, no Git repo: new alert is displayed, the file list does not change. (Previously, this case was a no-op, too).

In v2.0-rc.18 I added an explicit alert dialog for when a) no version control information is found, or b) when version control is found, but has been explicitly disabled for the folder (as we do e.g. for the home folder due to performance issues).
Let me know if this alert is triggered, or if the button is still sometimes a no-op.

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