Hello! I’ve been using Obsidian and Obsidian Sync since summer 2023, and have experienced this issue as long as I can remember. I created this account today specifically to chime in on this issue, since this is the first time I’ve managed to find people talking about this.
Similar to several others here, I use Obsidian on desktop (MacBook and also NixOS, both managed via Nix) as well as iPhone and iPad. The only community plugin I use is Archiver by Ivan Lednev, since I have a big note called todo.md which I use to manage tasks, so that each day I can automatically move completed tasks to my daily note for that day.
I don’t know how to reproduce this issue on demand, but I experience it frequently. It seems to be more likely to happen (and the damage done is much more severe) when I open my todo.md note on a device I don’t use as often, like my iPad, but it also happens sometimes even when just switching between my frequent devices like my MacBook and my iPhone.
I wasn’t aware of the “Create conflict file” setting before, so I’ve just switched to using it, and will see if that helps! 
It causes me a lot of anxiety when I see that my todo.md has been mangled, since the whole point of it is to make sure I don’t forget things; every time I repair it, I always worry that some important task got lost in the process.
But to be quite honest, I’m baffled about how this issue happens at all even with the “Automatically merge” setting. I’ve only dabbled in concurrent editing algorithms for software I’ve built and I’m aware it’s a hard problem, but it’s unclear to me how this would occur under either an OT setup or a CRDT setup. I really wish there were some way I could look under the hood of Obsidian Sync to see what’s going on, but I know that’s not possible since it’s a closed-source paid product.