The only way I could FINALLY fix the red character error was:
0-. Uninstall the sim in Xbox App
1-. Open the sim in the streaming mode (Xbox Cloud Gaming (Beta) on Xbox.com)
2-. Use it for 5-10min
3-. Close the game
4-. In the same page, select the Settings icon.
5-. Select the Manage games tab.
6-. Erase your profile and save game
7-. Install the game again and DO NOT skip the initial character customization.
It worked for me after trying plenty of online suggestions, hope it helps.
(source: Xbox Support)