Xbox PC app will soon let you use mods and custom install folders

It seems you'll be able to move installed games to another location too.

Custom install folders, mods and more coming to Xbox App for PC

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Microsoft updates its Xbox Game Pass for PC store, allowing users to mod games and choose install folder

PC Xbox App Removes Installation Restrictions, Allowing Modding [Updated] - IGN

Xbox PC App To Allow Mods And Custom Game Folders