It is actually a competitor. Mean Microsoft have to improve if they want to keep the users. With the Windows 10 EOL soon they will give up on those users on those computers. Basically forcing anyone else to take care of them - Linux stands there welcome. Users just need a push or someone saying try this for free.
Your new account will be online. Can access OneDrive and everything Microsoft Online offers. That means anyone with internet access can try to login to it so it has to be very secure.
Windows Hello can be used for local login. But I agree with you. I would love to be able to access my Keepassxc vault during the login process. But that might be hard to archive so better to use Windows Hello.
It is insecure to create one account with username and password during the setup process. The password should always come from your password manager. But you would not have access to your password manager during the installation process.
Please remove this step.
The user can choose. Please note you first much accept another client by its fingerprint.
Sure, test it, but in a virtual machine first. Then read up what you actually want.