Unfortunately, that is the only option at this time. XBOX disabled the user to upload their own photo during COVID. I do think they will bring it back, but that image you pick from their selection, you can change many times. It’s only the gamertag you can only change once for free.
MSFS is an XBOX game, so that is why the XBOX app is required. XBOX can also refer to a console. But your case, it’s the XBOX Windows 10 PC App. That link I sent, you can log into using that same XBOX account you used when you signed up for MSFS.