I cannot buy Game Pass Ultimate even though I have the funds.

Hi and thanks for reaching Microsoft Xbox gamer's community. My name is Josef.
I'm an Independent Advisor and a Microsoft Xbox user like you.

Hope you're doing great today despite this WTIGER87

Microsoft changed the way subscription works, now to purchase a subscription is necessary yes or yes have a backup payment method (credit or debit card, etc)
When you select balance as primary payment method the money will be debited from there

And after that you can turn off recurring billing and delete the card

Good deal. I would buy the ultimate though. even if the game pass is very often on sale

I have tried multiple hard resets, and I have let the console sit overnight while unplugged. Previously on Game Pass, even though I did not own the pass and the subscription was being shared with me, I was able to download games included with Game Pass on my account. Now with Game Pass Ultimate, I cannot do this.

Not entirely sure if the error is related but Game Pass Ultimate is a subscription service and requires a funding source such as credit card or debit card, even if you plan to use your MS balance. The only option around that is to buy a GPU card from elsewhere and apply it.

However, not sure that explains the region error you are getting though

You can purchase the subscription with the funds from the gift card if you also have a credit card or Paypal on file. Since it starts a recurring subscription, the system has to make sure you are able to male the following payment even if you plan on turning
off auto-renewal.

Gold is included only if you're buying Game Pass Ultimate. Regular Game Pass does not include Gold. Gold will work on the 360 whether you buy it on its own or through Game Pass Ultimate.