Hi anonymous user,
I discussed this issue with some contacts on the product team and they confirmed that this is a by-design behavior. This is a limitation from the Office 365 workload and not on the Azure AD side as user names are part of the Microsoft 365 workload. At the server side (AAD) the interpretation of the user name depends on what is supported by office. Special character limitations for user names in Microsoft 365 are provided here.
If you are concerned about the token claims though, they should be parsed as-is with the special characters. For reference, see How does SSO deal with accent marks? But if the user name is not recognized by the Microsoft 365 workload, the access token will not be received.
If you would like to request more support for special characters in Microsoft 365, you can create a feature request here. I have also created a request and bubbled this up with the product team. I added a Microsoft 365 tag to this thread, but they also have a forum in Tech Community.
Best,
Marilee
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