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Azure B2B Multi-tenant application external user login issue

I'm not sure about the login issue. I can tell you only about the failure to update policy.

As you configure cross-tenant access settings, if you receive an error that says “Failure to update policy due to object limit,” you've reached the policy object limit of 25 KB. We're working toward increasing this limit. If you need to be able to calculate how close the current policy is to this limit, do the following:

1. Open Microsoft Graph Explorer and run the following:GET https://graph.microsoft.com/beta/policies/crosstenantaccesspolicy
2. Copy the entire JSON response and save it as a txt file, for example policyobject.txt.
3. Open PowerShell and run the following script, substituting the file location in the first line with your text file:

$policy = Get-Content “C:\policyobject.txt”

$maxSize = 1024*25

$size = [System.Text.Encoding]::UTF8.GetByteCount($policy)

write-host "Remaining Bytes available in policy object"

$maxSize - $size

write-host "Is current policy within limits?"

if ($size -le $maxSize) { return “valid” }; else { return “invalid” }

For more details You can follow the documentation.