“They have not removed it, it just is not visible by default if you are connected to the internet. Either run the setup without being connected to the internet, or type in a fake phone number a few times and it will give you the prompt to create a local account.”
That's a pretty clear dark pattern, no? At the very least, it signals that Microsoft really doesn't want users creating offline accounts. Which is troubling, because their TOS for online accounts is quite onerous, and includes a couple of problematic restrictions, including a mandatory arbitration agreement. If I was a Windows user who relied on local accounts this would be very worrying to me.
Just how reddit now prompts you to enter an email when you register but it's not marked as required and it doesn't say optional either.