RE: Invalid credentials - Authentication to Dataverse connectors (Power Query Import Mode)
no, this is not correct. These are two totally different methods and unrelated.
The Power Query -> Dataverse connector uses the connector to get the meta data for the entities you select from your dataverse, allows you to transform that data, then imports the transformed data into the CI managed (or your data lake in the BYODL scenario) for use within CI.
The "Connect to Dataverse" method simply lets you choose which entities you want to use within CI and retains a link to the Dataverse datalake. Whenever we need to use that data (M3, or to build a measure, segment, activity) we connect to the Dataverse and pull the current (complete, all fields, all rows) dataset perform the task and then discard the data from memory.
They are in no way linked together. You can do one, or the other...or both.