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Here's the breakdown of iCloud's security: https://support.apple.com/en-us/HT202303

Some features are E2E encrypted, but iCloud file storage is not.

That's pretty accurate. Some stuff is encrypted with the device passcode like Health data and Keychain data. Around iOS 9 [1], Apple implemented some functionality to encrypt backups through a similar mechanism. This never panned out.

1) https://wccftech.com/ios-93-prompt-passcode-restoring-encryp...

Edit: as others have pointed out, looks like this never happened because the FBI said no.

An alternate explanation is that this never occurred because if people lose their passwords they would be completely out of luck.

The link you posted supports the point you're claiming is not accurate. Only a few categories of iCloud data are end-to-end encrypted so that Apple cannot access them.