Yes, this is usually due to an incorrect/incomplete connection to your XBox Live account. Normally, it should be sufficient to close the sim, then go to your XBox application, ensure you are logged in correctly inside, then relaunch the sim. Problem should be gone.
I found this happened after I started the sim with my VPN still on, then after I switched it off the problem was still there. I think the sim thought I was trying to launch from a different computer. I had to go & download my digital ownership of the game again. Everything was fine after that.
It seems like Microsoft Flight Simulator 2020 is prompting you to insert a disc, even though you purchased and downloaded it online with no physical disc. This issue may be a technical glitch. Try restarting the application or checking for updates. If the problem persists, you may want to contact Microsoft Support for assistance.