Internet down — something odd has happened to Xbox MSFS

Yes and yes.

I wouldn’t go about reinstalling until you sort out what is going on with your authentication issue.

Do you have any other games installed that you can launch and see if you have similar authentication issues with? Something is clearly not right about your Xbox communicating with the MS authentication servers that ensure you own what you are launching.

This may be a dumb question, but have you fully rebooted your Xbox?