It seems that Microsoft has fixed an issue, that prevents users with Windows Phone 8.1 to login into their Microsoft Account after they resetting the device from Windows 10 Mobile.
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Since February 5, 2017, users with Windows Phone 8.1 are facing login problems after resetting their devices. Users were no more able to login to a Microsoft account, they are receiving the Can't connect message shown below.
Searching Microsoft Answers forum shows a lot of hits, also neowin.net reported this issue. According to this neowin.net article the issue has been solved – but no details are available yet.