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Hey!
One thing there might be that the file locally does not have read privileges so the command is failing to get its content.
You could try passing the user data using the --user-data flag instead, eg:
doctl compute droplet create myodds-api221-2 --size s-1vcpu-1gb --image ubuntu-22-04-x64 --region fra1 --wait --user-data "#cloud-config\npackage_update: true\npackage_upgrade: true"
If this still fails, can you confirm how exactly verifying that this is failing?
Best,
Bobby