Yes I have selected specific users. We have an on prem install (4 users selected) and a hosted install (5 users selected) both has separate integrations to the same M365. Both show the same error message for each user selected.You need to enable user sync, also the "user photo" option, but of course you need to also specific users below (All Users, or specific ones).
Also, have you checked this thread?
https://www.3cx.com/community/threads/365-photo-sync.83644/
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