Cannot get my Personal Microsoft Account to work

RalfR6

Bit poster
macOS 27.2, latest Parallels Desktop, installing Windows 11 Pro as the VM.

Manually installing using the latest .iso for ARM.

When trying to set up with my Personal Microsoft Account I can enter the password and the code from an authenticator app. Then the setup assistant fails with "Oops, something went wrong" and suggest processing with setting up a local account.

The VM does have Internet access and can reach *.microsoft.com domains. Time and date are correct.

Second attempt: Trying to complete the setup assistant with a local account and then linking it to my Microsoft Personal Account.

When going to Settings > Account > Sign in, I'm again asked for credentials and then to enter the password of the local account one last time.

However, Windows rejects the local account password and states it to be wrong. I made 100% sure I'm using the correct password which also works to log in with the local account.

This has been a terrible experience. Did anybody go through the same problems and has any idea how to resolve?
 
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