"You can not play because of how your Microsoft Account is set up"

Hi, I hope you're doing great out there. I am an Independent advisor and I am here to help you in regard to your concern.

Since you have already paid for your subscription you should be able to play the game now. Please remove and re-add your account by following the steps below:

REMOVE ACCOUNT​​​

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1. Press the Xbox button to open the guide. ​​​

2. Select System > Settings > Account > Remove accounts. ​​​

3. Select the account that you want to remove, and then select Remove to confirm. ​​​

4. When you're finished, select Close. ​​​

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POWERCYCLE CONSOLE​​​

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1. Turn off your console by holding the Xbox button on the front of the console for approximately 10 seconds. The console will turn off. ​​​

2. Turn your console back on by pressing the Xbox button on the console or the Xbox button on your controller. ​​​

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ADD ACCOUNT​​​

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1. Press the Xbox button to open the guide. ​​​

2. Select your gamerpic in the upper-left corner of the screen, move all the way down and select Add new. ​​​

3. Enter the Email address and the password.​​​

4. Read the Microsoft Service Agreement and Privacy Statement, and then select I Accept. ​​​

5. Follow the steps to configure your Sign-In & Security preferences to add your Microsoft account to your Xbox console.​​​

Also dealing with the same issue and have tried every single piece of advice offered, really hoping to hear back from somebody it's getting a bit depressing.

i indeed am playing on xbox, thanks for the help. I think you just solved the problem.

Hi, I hope you're doing great out there. I am an Independent advisor and I am here to help you in regard to your concern.

Just a friendly reminder though that to play the Minecraft game online multiplayer on the Xbox console, an Xbox Live Gold subscription is required.

You may need to buy an Xbox Live Gold subscription under your wife's account. Once done, perform a powercycle on the console in that way the console will detect it.

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POWERCYCLE CONSOLE​​​

​​​

1. Turn off your console by holding the Xbox button on the front of the console for approximately 10 seconds. The console will turn off. ​​​

2. Turn your console back on by pressing the Xbox button on the console or the Xbox button on your controller. ​​​

I'm having the exact same issue as OP. I have done everything above mentioned. All my settings are correct. Powercycled, uninstalled and reinstalled, factory reset my xbox as you suggested as well and it still tells me this.

My only difference to OP is I have Xbox Game Pass for Console.