Actually I fixed the problem.
The issue is that I had the overlay on a literally separate page. So this meant that I could see the overlay in the dropdown menu on one figma page, but not when I used a component instance in another page.
This may be helpful to know, you guys should put some sort of warning somewhere, because I lost a few hours of my life trying to figure out wtf was going on 
Users should know that this is an issue somehow within Figma, like a warning.
Hopefully this doesn’t happen to other users.