This was a weird quirk.
I have Power BI Free account and uploaded a report to Power BI Service. The report has dataset that gets data from a Sharepoint file.
In Power BI Service I went to the dataset "Schedule Refresh", selected "Connect Directly", "Enter Credentials" as oAuth, then entered my Office 365 credentials. This setup the connection successfully to the Sharepoint file, and then I could switch the "Keep your data up to date" to "Yes".
I accidentally clicked the "Try Pro for Free" button.
From that point on, every time I selected the Power BI Service dataset or the report, I got a pop up blocking message "To see this report upgrade to power bi pro". The only way to make it stop was to switch the "Keep your data up to date" to "No".
The only Pro feature is hourly updates, but I didn't select hourly, i selected daily, which is the default for Free Power BI Service version.
I had to delete the report and dataset, then re upload the report, and then redo the schedule report as per above (without accidentally clicking on the Try Pro for free button) to make it work again.
Clicking the Try Pro for free button seems to set a cookie or the report into a mode that makes it think I have selected Pro feature.