Hi @Pål Fladsrud
Check to see if the user has enabled passwordless authentication via SMS, which will prevent the user from resetting their password.
Also, check to see if the user is a federated user. The above error will be caused when you try to update the password for a federated user.
Please refer to similar questions: https://learn.microsoft.com/en-us/answers/questions/426801/azure-ad-password-reset-error.
Hope this helps.
If the reply is helpful, please click Accept Answer and kindly upvote it. If you have additional questions about this answer, please click Comment.