Microsoft released D365FO UDE environments long time ago, still they are barely used by partners and customers. There are many reasons for that, one of them is multiple bugs.
Several days ago I decided to try UDE one more time and created a new test environment. Besides challenges with environment creation, I was not able to save newly created "local XPP configuration". There were no options in the mandatory "Application version" dropdown, so the new configuration could not be saved.
When I moved mouse over the "Application version" dropdown, the hint appeared saying that there is no database backup for Cross Reference.
The solution was to go to "Tools" -> "Options -> "Power Platform Tools" and uncheck "Enable auto setup for Dynamics 365 when using the Unified environment."
Then use "Tools" -> "Download Dynamics 365 FinOps assets" to get the backup file. After this the "Application version" dropdown will be properly populated when creating new local XPP configuration.