However this temporary local file does not have the .xlsx extension and the FileFormat function which tries to determine the type of file then thinks it is a ZIP file (which it might actually be, I am not sure).

It looks like XLSX files are indeed just zip files:

In[21]:= CopyFile[FindFile["ExampleData/cities.xlsx"], "test.zip"]

Out[21]= "H:\\Documents\\test.zip"

In[22]:= ExtractArchive["test.zip", "unzipped"]

Out[22]= {
    "unzipped\\[Content_Types].xml",
    "unzipped\\docProps\\app.xml",
    "unzipped\\docProps\\core.xml",
    "unzipped\\_rels\\.rels",
    "unzipped\\xl\\drawings\\drawing1.xml",
    "unzipped\\xl\\drawings\\_rels\\drawing1.xml.rels",
    "unzipped\\xl\\media\\image1.png",
    "unzipped\\xl\\_rels\\workbook.xml.rels",
    "unzipped\\xl\\sharedStrings.xml",
    "unzipped\\xl\\styles.xml",
    "unzipped\\xl\\workbook.xml",
    "unzipped\\xl\\worksheets\\_rels\\sheet2.xml.rels",
    "unzipped\\xl\\worksheets\\sheet1.xml",
    "unzipped\\xl\\worksheets\\sheet2.xml"
}