The same here on a brand new M1 Macbook air. After migrating from the old macbook air, the new macbook refused to take the "old" password to log in. We even considered wrong keyboard layout (qwerty vs azerty) so we also tried example password: "word", so we also tried "zord". No matter what we tried, the correct password was denied!
When trying to reset the passwordt, we got to the screen that said "deactivate macbook". We did not click that!
So we had contact with apple support and they let us reinstall Big Sur.
After a while of installing this error is where we are now. After trying "again", again the same error message.
What I'm trying to do next is "install from time machine".
There was no time machine backup from the old macbook air, so I'm waiting for it to finish and the I'll try that way....