If you try to sign in with a Microsoft account, the launcher opens a custom in-app web view to render the Microsoft login page.

This comes with a number of problems

1) This web view does not support U2F security keys or Windows hello properly (leading to the error screen attached below)

2) Copying over your credentials from a potential password manager is very inconvenient

Many Apps have solved this problem by extracting the process of signing in to your account to your browser. This enhances the login process greatly as a) you're mostly already logged in and b) browsers support all the required security features like WebAuthn, which would enable U2F security keys and Windows Hello, which are both already supported by Microsoft accounts.

Another way which could be used additionally on Windows is the internal Microsoft Account System used by other Microsoft Apps, like the Windows Store, the XBox App or Cortana,

As you can see here the Account which is already tied to the windows account, is preselected and another login method supporting all security features is provided

Instead, what you get right now when trying to use the above-mentioned methods is this error screen (This just happens if you click the "Sign in with Windows Hello or a security key" link on the main login page, if you enter an email address and then use a security key it works

This issue is really similar to MCL-18142 which got closed for being invalid and this being an account issue, but it's not it's an issue with the way the Microsoft page gets loaded and not related to specific accounts being used to test it