So I uninstalled Gaming Services app, Xbox for PC app and Xbox Live App. Reinstalled Xbox App for PC, which prompted Xbox Live install and I guess in the background it reinstalled Gaming Services app and now it launched the MSFS update.
So whatever went wrong is solved by removing these 3 apps and reinstalling them
Xbox app for PC
Gaming Services
Xbox Live
all listed in Settings > App > Installed App and selecting each in … uninstall.
Then going to Microsoft Store and finding reinstalling Xbox App for PC, which prompts Xbox Live install and it did gaming service without asking.
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