I'm in the same silly loop described. I'm sure it is because when I installed Win 8 I chose my gmail address as my Microsoft Address. Then I went to Local address. Now I'd like to go back to MS address but I get in the loop. Starts out:
Create MS Account
Enter Gmail Address
Choose new password
Alt email
Secret Question-answer
Get: This email address is already a MS acct, use it if it's yours
click use it
Asks to sign in Gmail Acct & Password
Email addr or Password incorrect
Ask to reset password.

Go to MICROSOFT account - Reset Your Password and it says
"The MS acct is incorrect. Please try again."
even though it's the same name.

Can someone Help please?
I'd really like to use my gmail address if possible (caronaz@gmaill.com)