[BUG] Add-PnPListFoldersToSiteTemplate: [...] invalid child element 'Preferences' [...]

Background

I'd like to add folders to a (simple) site provisioning template.

Expected behavior

I expect this code to work, to get the Documents list and to add the folders to the list:

Get-PnPSiteTemplate -Handlers ContentTypes,Lists -Out template.xml -ListsToExtract "Documents"
Add-PnPListFoldersToSiteTemplate -List "Documents" -Path template.xml

Actual behavior

I get this error:

Add-PnPListFoldersToSiteTemplate: The element 'Provisioning' in namespace 'http://schemas.dev.office.com/PnP/2021/03/ProvisioningSchema' has invalid child element 'Preferences' in namespace 'http://schemas.dev.office.com/PnP/2021/03/ProvisioningSchema'. List of possible elements expected: 'Templates, Sequence, Teams, AzureActiveDirectory, Drive, ProvisioningWebhooks' in namespace 'http://schemas.dev.office.com/PnP/2021/03/ProvisioningSchema'. Add-PnPListFoldersToSiteTemplate: Invalid template file.

This apparently is caused by the Preferences element in the template XML file:

Removing the Preferences element fixes the error. Maybe the schema is out of date? Or ist this a version mismatch (1.6 vs 1.7)?

PnP.PowerShell has version v1.7.0 (latest as of writing this)

Start by reproducing the documented Get-PnPSiteTemplate and Add-PnPListFoldersToSiteTemplate commands with the generated template.xml. Inspect how the Provisioning schema handles the Preferences element and compare that with the 1.6 and 1.7 versions mentioned. Done means folders can be added to the Documents list without the invalid child element or invalid template errors.