I have run into this too. Player 2 inventory is even completely gone from older back ups of the same LAN world, and the player reappears at spawn. Every world seems to be treating Player 2 as a brand new player, despite them still using the same X Box account as usual. Weirdly a third player on the same world seems to be fine, though!
I appreciate that you guys have your hands tied by Microsoft here, but I've got no better place to express my significant frustration on this too. We have long played as a family via split screen on X Box and with my daughter on a phone and then iPad (and I bought additional copies of the game for the device each time) in the lounge, but now her player of many years is stuck in the digital aether, with her inventory gone and all of her animals wandering around our world unable to be controlled by anyone. She's devastated. If it wasn't broken, why fix it? And if this change does have to be made, then maybe at least provide a tool to transfer player data to a new Microsoft account.