Select a Dataflow Gen 2 destination

Got it - That means it is a Dataflow Gen1, in which case the behavior you are experiencing is expected.

Dataflows Gen2 artifacts have a "Dataflows Gen2" label on that type column.

This is indeed a Dataflow Gen1 (Or, Dataflow). 

To create a Dataflow Gen2, while Microsoft Fabric is in Public Preview, your tenant administrator needs to enable Fabric for the tenant. More details on the process can be found here:

Enable Microsoft Fabric for your organization - Microsoft Fabric | Microsoft Learn

Once enabled, you can follow steps in this document to create your first Dataflow Gen2.

Create your first Microsoft Fabric dataflow - Microsoft Fabric | Microsoft Learn

Thanks,

Ben