I believe it is happening, which is why I do not upload any unencrypted content to those services.

In which case, this new change wouldn't affect you anyway, because it only applies to photos uploaded to iCloud.

can you explain why? if you upload a file selectively, where is the issue if its hash is compared to a CSAM database?

You can't check what's in the database. Someone could extend it to other things.

Isn't this far fetched? There is few things I can think of that would get you into legal trouble but are morally acceptable. Like whistleblowing

You might be safe now in relatively okay Western countries. Consider the possibility of places like China using these features, or just future Western governments which are worse.