Tim - I have the same issue.
You are correct in your assessment. But what is the solution? how can we reset the old passwords?
This is so frustrating to deal with, nothing works. Trying to setup passwords interactively doesn't work.
Trying the API to change passwords fails because of keystore issues.
I saw your answer to this on another thread, great answer, thank you.
In my case I get this error:
Security index is not on the current version. Security features relying on the index will not be available until the upgrade API is run on the security index
Update: problem solved in my case after upgrading the indices (security indices) using this link.
All of this took 4 hours, lots of research and time wasted. I think the scenarios that happened here should be part of a QA session to get better error messages, and to handle things like upgrading the security indices automatically. I, as a user, should not even know this has taken place. Once I did the upgrade and installed x-pack, why do I need to learn (4 hours later) that the root of my issue is something that was not upgraded? how could I have known?
Thank you