I think I solved this problem. Under the partner.microsoft.com - I had to go to "User Management" and then click a link to become administrator and owner. Once I did that, it presented a screen with the TXT value for DNS entry and after I added it and it converted the account into "Account admin, Referrals admin, MPN partner admin, Owner"
Then I was able to add verified MPN ID to the application created in the portal.azure.com and now it shows verified badge.
No answer is needed for this any more at least for me, but this process could certainly be much easier than it is, it is very unintuitive as it is IMHO.