Okay, since this apparently needs explaining I'll explain it. Hold your horses before you go accusing me of willful ignorance for a moment here, yes?
If you look in https://privacy.microsoft.com/en-us/privacystatement and click "Learn more" under "Reaons we share personal data" You see the following statement:

However were you to look there a couple months back (And you can verify this with the wayback machine) it would look like this:

Notice what's different between the two. Only the text within the parenthesis is actually different. From a legal standpoint these two statements are the exact same and I'll tell you why: What's in the parenthesis are just examples. The actual legal content is what's outside of the parenthesis "We will access, disclose and preserve personal data, including your content." What's inside the parenthesis are just examples of what that includes, it's not actually what they're limited to.
The reason I didn't include that in my post is because it would just confuse people. Legal talk is not a very fun thing to talk about.
This is exactly what I meant, however just to be clear, Outlook, OneDrive, are the things that have a similar policy, and those services can only be used with a Microsoft Account.
The OS does not require a Microsoft Account, since the user can use the "Use local account" option, by doing that the user can not use some of those services completely, I see now why the confusion is caused :
In windows 10, if you go with a Microsoft Account, sometimes it defaults to storing your Documents, Photos, Games, Music on OneDrive as opposed to locally, that's where the privacy policy you mentioned comes in, but if the user goes with a local account, this defaults to saving information on the device's local storage, and the privacy policy you explained does not take effect.
I guess its the Windows 8 all over gain where people thought the Start Menu was gone, when what really happened was they made it fullscreen and adjusted it to work with touch based devices.
You are not to blame for this, its just Microsoft being terrible at explaining things again.