The connection works fine, but the model stays in "Live" mode with no option to "Make changes to this model" in order to combine it with other DirectQuery and imported data.
If you connect to a Power BI dataset using the Power BI datasets connector, this feature works fine. If you connect to an AAS dataset using the Analysis Services connector, the feature also works fine. I can't see anything in the docs that would suggest this not working.
Why can't I just use the Power BI dataset connector?
I'm trying to test the scenario of connecting to a Power BI dataset in Power BI Desktop using a B2B Guest user account. Because Power BI Desktop doesn't allow you to sign in to a tenant other than your home tenant, I can't use the Power BI datasets connector. So I thought I'd try connecting to the XMLA endpoint using the Analysis Services connector. Which, as mentioned, allows me to successfully connect to the model, but the "DirectQuery for Power BI dataset" feature doesn't work.
The account I'm using to log in with here is irrelevant - the "DirectQuery for Power BI datasets and AAS" feature doesn't even work when connecting with an account in the correct tenant (in fact, the screenshots below are using an account in the correct tenant).
I would have thought connecting to a Power BI dataset through the XMLA endpoint explicitly is pretty much equivalent to using the Power BI dataset connector (or even the AAS connector, for that matter).
Steps to reproduce:
Retrieve the XMLA endpoint connection string for the workspace + dataset (powerbi://...)
Use the Analysis Services connector to connect to the Power BI dataset
See the lack of option to make changes to the model