Cannot set up Touch ID, unlock System Preferences, or reinstall Big Sur [2020 Intel MBA i3]

Answering my own question, but... resetting the SMC (as explained here https://support.apple.com/en-ca/HT201295) ended up doing the trick for me.

The fix for me was actually the steps before resetting the SMC, so I didn't need to do an SMC reset. Here are those simple steps:

1. Shut down your Mac.
2. Press and hold the power button for 10 seconds, then release the button.
3. Wait a few seconds, then press the power button to turn on your Mac.

Source: How to reset the SMC of your Mac by Apple

Worth noting I did first remove all existing Touch ID fingerprints from my Mac before doing this.

UPDATE: It's also worth remembering that Touch ID is disabled for the first login after a shutdown

Encountered the same issue w/ System Preferences. An SMC reset fixed.

You can try to restore to factory settings by installing the version of macOS that came with your MacBook Air instead of Big Sur.

Here's how you do it:

1. Turn off your Mac
2. When you start it hold CMD+OPTION+R
3. Connect to the internet if it ask for an internet connection
4. When you are in internet recovery mode, open disk utility and erase the disk
5. Exit disk utility and install a new copy of macOS