While my symptoms were not a 100% match to what OP describes, I think it has value in this thread. I too was facing issues just about every time there was a windows update, or an update to the xbox app, or gaming services, etc.
While the error message wasn’t the same, the gist of the problem is that xbox app couldn’t open the sim… or any other games (except MS solitaire).
The specific issue I was seeing, was that the XBox app didn’t detect the game installations as good, and marked them with an exclamation point. And if you tried to open said game it would just bounce you to the Gaming Services page in the MS Store.
Yes, I went through the several ways an issue of this nature is often fixed, and while that would get me to a working state, the next time there is a windows update, or an update to gaming services, etc. the problem would come back.
Or, if I tried to run the xbox app “too soon” after a reboot, it would also trigger this problem state. Huh? What’s “too soon?” Yeah, I know. But I found that if I waited about 15 minutes after rebooting to launch the XBox app, it wouldn’t trigger the problem.
Keep in mind, no problems in any other way shape or form. Ubisoft games… fine… Steam games… fine. Anything through XBox App (Gamepass PC)… not fine. It almost drove me to just cancel the service.
What I finally did to fix it – knock on wood - was I totally rebuilt my user profile in Windows 10. Which basically means I created an admin account, then used that to backup my user files and %APPDATA% stuff, then deleted that account and created a new one, and copied the user files and %APPDATA% stuff to that new account, gave that new account ownership, etc. and then changed that local account to be associated with the microsoft account.
After having done that , so far I have no issues. And since I kept the user files and %APPDATA% stuff, it saved me from having to re-setup everything that is not Microsoft, which would have really sucked.
I am convinced that something hosed the windows profile. Perhaps, and I am just thinking out loud here… LOL… it was that I had opted in to the Insider program and activated the Xbox Gaming preview?
Yeah, it was after that when the problem went from being something that happened once in a blue moon, to becoming a daily issue.
And no, leaving that insider preview did not fix anything. Probably the last time I will Insider preview anything having to do with Xbox App or Gaming Services.