Obsidian Sync and iCloud are 2 separate ways to sync a vault. Using iCloud does not require an Obsidian Sync subscription, and works the usual way (encrypted on Apple’s servers but not end-to-end encrypted). Your data is only synced to Obsidian’s servers if you use their sync service (in which case don’t also sync that vault with iCloud because it will cause problems).
Right, you will only get end-to-end encryption if you use Obsidian Sync. Obsidian Sync won’t make iCloud end-to-end encrypted. You don’t need to pay for Obsidian Sync to use iCloud. You can sync some vaults with iCloud and others with Obsidian Sync, all on the same device.