I did a lot of narrowing down to isolate this but I believe that if you've played Grounded 2 on Game Pass, you're permanently locked out of doing any multiplayer on Steam. I have played a lot of Grounded 2 with a friend on PC through Game Pass and saw that it was available on Steam for $30, so I bought it and went to transfer my save. But I cannot even access the multiplayer menu; the name at the top left of the menu screen reflects that my xbox account is signed in and linked (it shows my xbox name, not my steam name). I get a screen saying I have to sign into xbox, then a load screen, then it goes back to the main menu. If I disable crossplay, I get the same screen; if I enable crossplay after that, the game gets stuck in an infinite load screen.
I created a new xbox account and had that logged in when I started Grounded 2 on steam. The menu screen reflects that I am logged into this new xbox account (that's never played grounded 2) and lets me proceed to the multiplayer menu.
So I think I have narrowed it down to some kind of authentication issue, maybe on Xbox's end; I think Grounded 2 on Steam tries to log into Xbox, but because I'm already logged in on Xbox, it bugs out and takes me back to the menu screen.