cannot use import sources when using a dataset live connection (i.e. composite model)

Having the same issue.

I have a user inputting data in an Excel which was loaded to PBI service. From service, a live connection was established with PBI desktop, and the vreport created in desktop was published to service. Updates to the Excel are reflected all around, which is great. But in the PBI desktop file, if there is a live connection I  can't model, or even enter data from within the application. As OP noted, the options for modeling get grayed out.

The only other option I've found that works is to create the model in desktop, publish to service, and then establish a gateway connection between the dataset (now) in service and the Excel file. Not only cumbersome, but adds another layer of potential problems for mainitaing a live connection?

This is terrible implementation. If I understand correctly, Microsoft views as a risk that outside data will be implemented into the model. But couldn't you just do that in Excel and reimport into service? What's the difference? This because a workaround would be to create the model in Excel and import to PBI service, and Excel also uses Power Query!

Please help me make sense of all of this.

Thank you.