I can reproduce the same 500 error when trying to add an AAD group to Project Collection Valid Users group. If you add an AAD group manually to this group, you will get the same 500 error in the UI.

According to the official doc, this group contains all users and groups added anywhere within the collection. You can't modify the membership of this group. That is why you get 500 error.

It's suggested that you add your AAD group to other groups at organization level, whether a built-in group or your custom group.