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So I am replying to my own question, as I think I now understand what is going on here.
When we launched Canvas at our institution a few years ago, we enabled ADFS for all our user. After doing some investigation into the issue I reported above, I realised that the user logins record for each user was explicitly specifying that the authentication id of our ADFS integration was used, rather than the new AzureAD authentication.
Helpful REST API calls:
Authentication Providers - Canvas LMS REST API Documentation
Logins - Canvas LMS REST API Documentation
The newly added AzureAD authentication integration will show up as a record via the Authentication Providers API
When I examined the Logins API for a given user, I could see that the login was locked down to use ADFS
So in order to allow users to login via AzureAD, it is going to be necessary to update / add a logins record that permits use of AzureAD.
I hope this helps someone!
(I've also added a comment describing this issue to the Canvas documentation on setting up AzureAD https://community.canvaslms.com/docs/DOC-1402-configuring-azure-saml-and-canvas-authentication )
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