August Superdave: If you are not planning to use 1Password account, then you should be using 1Password 4. Local vaults from Dropbox were partly supported in the previous versions of 1Password 6, but not anymore. They were added specifically for migrating your local vaults into 1Password. We've gotten rid of this because people thought this meant local vaults were supported but it wasn't. We are planning to bring local vaults support back in 1Password 7 for Windows , but I do not have any timeframe for you at this point. I hope it helps.
I'd like to know just a bit more about the situation here so we can get things sorted out for you: Was iCloud sync working for you prior to the update? Or are you setting things up fresh here?
1Password 5 for Mac – Setting Up One-Time Passwords