What antivirus are you using? My initial guess is that is probably the cause as they scan encrypted traffic (https) using self signed certificates and man in the middle hacking techniques. Thunderbird does not recognize the self signed certificates as they are not a part of the global chain of trust, so things die out real quickly when the AV gets into the picture.

Try disabling it while you try again. The local host is essential to the process. I asked before and there is no alternative for the initial authorization, but that is the only time it is used.

Thanks for the reply. I have Caddy installed, which manages certs. Shutting down Caddy before authentication solved the problem.