I'm wondering if this is down to some limitation in macOS / Finder under Monterey and/or Apple Silicon?? Or maybe a bug in Hazel?? Anyway here it is:
I have a set of rules for a certain folder in one of my two my Google Drive accounts. I access the folder through Finder and drag it to Hazel. I then add the rules and they test well. So far so good. Except if I click on Hazel in the menubar > Run Rules, the folder in question isn't in the list.
I then quit and relaunch Hazel. Now the folder icon in Hazel has dimmed to light blue and the tootltip says it's offline. But it isn't. Nothing has changed. The file path in Hazel's tooltip is /Volumes/GoogleDrive-myaccount/MyDrive/myfolder. That's correct. Or is it?
So I again navigate to the folder in Finder. Having selected it I again drag it to Hazel. The folder icon displays the normal blue. The tooltip now gives the path as /myGoogleAccountName/GoogleDrive/MyDrive/myfolder (no starting "/Volumes"), and no message about it being offline.
I delete the 'old' folder icon (which Hazel still says is at /Volumes/GoogleDrive-myaccount/MyDrive/myfolder) and again quit and relaunch Hazel. Now the 'new' folder icon is pale blue, and the tooltip shows it as offline and at the address starting with /Volumes.
I had this same setup (same folders, same rules) on my previous iMac (Intel, 27", running Catalina). The rules operated as intended and nothing broke.