Hi,
It appears you don't have ACI service principal in your tenant. To create it, please open up Azure Cloud Shell and run below command:
az ad sp create --id 6bb8e274-af5d-4df2-98a3-4fd78b4cafd9
After executing the command you can double-check it has been created using below command:
az ad sp show --id 6bb8e274-af5d-4df2-98a3-4fd78b4cafd9
Now that service principal has been created, please close the Create container instance screen (as shown in your screenshot) if you have it open, and then start the Create process from scratch. When you get to Advanced tab check to see if CMK option is enabled.
When creating your Key Vault, please refer to article below. Additionally, the article has important information related to encrypting ACI using CMK:
Encrypt deployment data
https://learn.microsoft.com/en-us/azure/container-instances/container-instances-encrypt-data
Please click Accept Answer and upvote if the above was helpful. If you have questions please add a comment below.
Thanks.
-TP