@Robert D. Crane
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:
Security defaults and external users:
If security defaults is enabled on a tenant does this force external users to also register for MFA when they access resources inside the tenant?
Solution:
External users will be required to complete MFA registration when security defaults is enabled
Links:
Enabling security defaults will enforce MFA on external users
All users should be changed to all "member" users #78194
I've created an internal work item and PR to update our documentation to include this information, and it's currently waiting for the author to review and sign-off.
Thank you again for your time and patience throughout this issue.
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Please remember to "Accept Answer" if any answer/reply helped, so that others in the community facing similar issues can easily find the solution.