Hello,
The missing piece is most likely the RDP authentication method, rather than the creation of another Windows user. Microsoft Entra users do not need to appear as local accounts on the Windows sign-in screen.
Please confirm that the VM has System-assigned Managed Identity enabled, the AADLoginForWindows extension installed successfully, and the required Virtual Machine User Login or Virtual Machine Administrator Login role assigned to the Entra user or group.
For a Windows 11 VM, open mstsc.exe → Advanced → select Use a web account to sign in to the remote computer. Then connect using the VM's hostname/FQDN rather than its IP address and authenticate using the Entra UPN, for example ******@domain.com.
Also verify that the test user is a member of the same Microsoft Entra tenant. If authentication still fails, review Event Viewer → Applications and Services Logs → Microsoft → Windows → AAD → Operational for relevant authentication errors.
For more detailed information, please refer to Microsoft’s documentation: Sign in to Windows virtual machine in Azure using Microsoft Entra ID and Azure Roles Based Access Control