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So they use different servers and dont work together.
It is. The lobby browser is Steam side though.
Even then, the game version is different per Steam and MS store (which runs Xbox version), so it's not like you could bypass the lobby browser and connect directly.
DRG is a P2P game, players host the lobbies; but the games online lobby making system requires Steams back end to function. Or The Xbox Live back end, depending on where you bought it.
If Steam and Microsoft would stop siloing their customers and allow their backends to communicate with each other, then it wouldn't be a problem, but Steam and Microsoft are greedy, so we get segregation. It's hardly the game's fault.
Generally speaking, these threads tend to see the OP get all grumpy-dumpy when they learn that they can't play with their friends. So generally speaking we've learned to 'soft sell' this particular feature.
You are not playing on the actual server, but being able to find one another does require a server. The rerouting on steam happens through the steam servers that also host the friendslist and community hub, and for microsoft they have their own servers. And they dont want those two servers from connecting to one another.