I figured out problem with my system. I had recently reinstalled Windows, and apparently that "corrupted" the owner field in all the files. The owner was replaced by a random alphanumeric value, which I'm guessing is internal tag/ref to my user in previous installation of Windows. Result of this was - large number of files became inaccessible to everyone, including me. (i.e. I couldn't double click to open those files either.) (Not sure why this access issue was occurring in some files, and not all files, even though all files had that "owner" issue.)
Anyway, I changed the ownership of all the files to my latest user after the Windows installation. The sync worked fine after that.