PROBLEM SOLVED
I had this exact same Homepod setup issue and solved it simply by unplugging then re-plugging my Homepod. Then I went into my iPhone WiFi settings and scrolled to the bottom and turned off Ask to Join Networks. Then I selected the network to which I'm attached where inside there I turned off Auto-Join and Auto-login.
Homepod setup then started and now I'm enjoying some wonderful sounds of music.
NOTE: As a first step it might not be necessary to unplug and re-plug your Homepod but that's what I did so I included that first step. Also, I noticed my iPhone had quickly switched on Auto-Join so you might want to double-check to make sure Auto-Join is switched off.
Enjoy your marvelous new Apple Homepod!!!
Glenn