Hello,
I was talking about the control panel's view setting in the upper-right corner. Since you have already found the dialog where the setting is, you do not need to toggle anymore.
Based on your screenshot, it seems that the option is disabled by a group policy. Please try reverting the "Classic Shell" setting using the method below, and see whether the file selecting issue still exists.
Also, since Classic Shell is not enabled by default, is your computer managed by your workplace/school, or you are using some "system tuning" software?
If you are using Pro version of Windows or higher, you can try reverting that setting by pressing Windows+R and enter "gpedit.msc" to enter Logal group policy editor. Select User Configuration->Administrative Templates->Windows Components->File explorer (Select the folder itself), then double-click "Turn on Classic Shell" and change the setting to "Not Configured".
If you are using Home version, since the group policy editor is not available, please press Windows+R and enter "regedit". In the registry editor, select HKEY_CURRENT_USER->SOFTWARE->Microsoft->Windows->CurrentVersion->Policies->Explorer in the left panel, and delete "ClassicShell" value.
Disclaimer: Generally, modifying registry subkeys or work group is intended for advanced users, administrators, and IT Professionals. It can help fix some problems, however, serious problems might occur if you modify the registry incorrectly. Therefore, make sure that you follow these steps carefully. For further protection, back up the registry before you modify it. Then, you can restore the registry if a problem occurs. For more information about how to back up and restore the registry, click this link to view the article.
We look forward to your response.