Accessibility and usability

I tested uploading a Word docx-file to Google Docs and indeed uploding it from Google Drive repository to moodle's file picker failed. The file type was changed to rtf so it was no more the original docx file in Google Docs. As you said a similar file created in Google Docs (rtf) could be uploaded to moodle through the same repository in a second.

The problem might as well be in the process that Google Docs is using to convert documents to new format (some unsuitable code inside the converted documents) - I tried renaming the test file and editing the file in Google Docs but it did not help. Still those uploaded files can be opened ok in Google Docs.

Your students could of course upload the original files from USB-sticks, hard disk or other repositories using file picker directly to moodle (if they have the original files) - without the Google Drive repository plugin.

Core developers might be able to help if you want to create a new bug issue to tracker https://tracker.moodle.org