I'm glad that you were able to resolve your issue and thank you for posting your solution so that others experiencing the same thing can easily reference this! Since the Microsoft Q&A community has a policy that "The question author cannot accept their own answer. They can only accept answers by others", I'll repost your solution in case you'd like to "Accept" the answer.
Issue:
In the process of application integration users is able to login with the application in initiating login through IDP. Though login initiated through application (Service Provider) getting following error
Error:
Sorry, but we’re having trouble signing you in. AADSTS7500525: There was an XML error in the SAML message at line 2, position 656. Verify that the XML content of the SAML messages conforms to the SAML protocol specifications.
Solution
To resolve the issue by removing the "NameQualifier" attribute from SAML Request which is from Service Provider. The valid SAML Request is below.
If I missed anything please let me know and I'd be happy to add it to my answer, or feel free to comment below with any additional information.
I hope this helps!
If you have any other questions, please let me know. Thank you again for your time and patience throughout this issue.