As the FAQ I quoted above appears to confirm, you can share games with other profiles, but only on the single device blessed as the "home console".
Of course, you can always pass physical discs around. IIRC, for digital purchases there's a convoluted way to use a single purchase with multiple profiles on multiple devices, but not at the same time. In other words, co-op requires multiple copies of a game. If purchased digitally, they must be bought using separate profiles since one profile can't buy a game twice.
It's quite possible I'm wrong about some facet(s) of this. Hopefully "Xbox Game Pass Friends & Family" fixes this, but if it only fixes the problem for Game Pass games I'm not sure how much value it'll have for me.
What some people do is they set their friend's Xbox as their home console and their friend sets their Xbox as their home console and then they both just stay logged in and online on their respective consoles. This lets them play all their friend's games but they can still play their own.