best response confirmed by Dave Franklyn (Occasional Contributor)
Solution

Did you install, choose NOT to enter the product key, then after the install was done, try to enter and activate the key?  if so, that does not appear to work.  I ran into the same issue on 2 of my 2019 servers.  I wiped them out and this time entered the key during install, and it successfully activated.  if I were to guess, they made something in the install to take into account these testing keys, but the Activation function within Settings, has not been updated to reflect that, so it thinks you are activating a live version of Windows, and that is not a valid key there.  That is entirely a guess on my part.  I didn't bother running a wireshark or anything to see what kind of response I was getting when trying to activate from Settings.

 

Just as an FYI, based on the earlier response, the 2 machines I was seeing this issue on, were not upgrades, they were brand new installs on a blank hard drive.  I have not gotten around to trying the in-place upgrade yet.  I don't know if this will help your situation, but I can say that I saw exactly what you were describing, and if you enter the key during the actual install, it appears to work.  I have not looked into the release notes to see if there is something that says Activation from Settings is not set up to work yet.

 

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