I'm trying to connect to the HDFS from the ADF. I created a folder and sample file (orc format) and put it in the newly created folder.
Then in ADF I created successfully linked service for HDFS using my Windows credentials (the same user which was used for creating sample file):

But when trying to browse the data through dataset:
I'm getting an error: The response content from the data store is not expected, and cannot be parsed.:

Is there something I'm doing wrongly or it is kind of permissions issue?
Please advise

This appears to be a generic issue, you need to point to a file with appropriate extension rather than a folder itself. Also make sure you are using a supported data store activity.
You can follow this official MS doc to use HDFS server with Azure Data Factory