> I recently got locked out of my machine because logging in with the mandatory Microsoft account-backed primary user of my machine didn't work anymore. It said I was offline and I had to use the "previous password" even though I didn't have a previous password for that account

Not sure what's so confusing here... When Windows is online, it checks your password against the cloud and updates the local store. When Windows is offline, it checks your password against a local store. By previous password, Windows just means the password you used on the last successful login for the user on that machine.