Same issue, on Nintendo Switch, for a child account . Have successfully authenticated via both the on-screen QR code and remoteconnect. After authentication, the Switch reports Failed to Login with ErrorCode: Drowned.
Note I can authenticate with my own account but the whole point of the guardian account is to limit access to marketplace, etc.
@callumblack - this worked! my own account could sign into https://accounts.microsoft.com but the boy's account was looping. I added a password to his sign-in options (previously set to emailing a one time code) and chose this option on the sign-in... and it worked. thank you!