Edit: the issue was Orca Slicer. Although I was using Bambu slicer I had Orca open in another window and connected to the printer. As soon as I killed Orca Slicer the printer allowed me to specify the filament as TPU for AMS.
You’ll have to use the external spool holder (the one in the back) for TPU. The AMS doesn’t work with TPU, although I’ve seen some info that Bambu is attempting to bring out a new TPU filament formula that would allow it to work with the AMS.
So for now, use the back spool holder. It’s also clearly said in the user guide on AMS usage.
This is the new “TPU for AMS” from Bambu where the page on the web site specifically says it works with the AMS. The machine reads the RFID, shows it’s TPU for AMS then says it doesn’t support it.