Outlook 2016 doesn't accept password or app password

Again, you are talking about IMAP originally authenticated using basic auth and Google wants those to resetup as OAuth-authenticated

It's evident you do not have a full grasp of all the elements here. POP3 can be upgraded to support OAuth2 as well. You are conflating different things together because you either lack the understanding of the nuances or chose to ignore them to pick a fight with others.

You keep going on and on about IMAP. IMAP does not support calendar or contact sync. This is what made Exchange or EAS appealing. This is what made a lot of us get on Outlook. And it's not about free or not for everyone. I am willing to pay for newer version of Outlook. To validate if it really cures the issue, I added my Hotmail account to my work M365 Outlook and it, too, failed. From what I can tell, IMAP was upgraded to handle OAuth on the server side, but Exchange/EAS may not be for Hotmail and similar consumer email accounts. If that's the case, upgrading to Office/Outlook 2021 wouldn't address the underline issue.

This is from the official Google support "Transition from less secure apps to OAuth" on the Email topic you can read the following:

"Users of stand-alone Microsoft Outlook 2016 or earlier—Move to Microsoft Office 365 (a web-based version of Outlook) or Outlook for Windows or Mac, both of which support OAuth access. Alternatively, you can set up Google Workspace Sync for Microsoft Outlook (GWSMO) for your organization. For details, go to Get ready & install GWSMO.

- Users of Mozilla Thunderbird or another email client—Remove your Google Account, re-add it, and configure it to use IMAP with OAuth. - Users of the mail app on iOS or MacOS or Outlook for Mac—If you use only a password to sign in:- Remove and re-add your Google Account.- Click Sign in with Google to automatically use OAuth."

Also it is stated: "This restriction includes third-party apps that still use basic authentication, such as CalDAV, CardDAV, IMAP, SMTP, and POP, to access Gmail, Google Calendar, and Contacts."

I'm not defending MS or whatever, I agree they can have managed this transition better, but if you really hating their service and business practice so much who is stopping you from fully move to another email provider?

Bedside your "Inside contacts at Google" can you provide a reliable source for your statement?

You are wrong. I checked with my contacts at Gmail. They will keep POP3 through app-password even with transition to newer auth method. Google is still allowing those of us that want to use local/offline email clients. In fact, Google has been doing security upgrade gradually, and they managed not to disrupt us like this case has. If I follow their published steps on account setup - things just work.

As far as accessing MS mail through Gmail app, Google is not proxying MS emails. Gmail client has build in Exchange and EAS service/support, so it acts like a real client. If it wasn't for MS' recent changes, it worked fine for years. Just so we are super clear, as far Gmail app is concerned, it does not "cloud cache" non-Google 3rd party emails. All requests from my device's Gmail originates from my device's IP and not from Microsoft Cloud's IP. In addition, Google made it explicitly clear that Google Workspace will not proxy or scan third party data unless the user or IT admin give it consent..

If, just if Google one day decides to do "cloud cache" and proxy non-Google emails, I would equally NOT allow them to access my MS-based emails. I, and I assume most people, would apply this rule equally as well.

What you are doing is conflating OAuth and "cloud caching". OAuth does not technically imply one must use/allow "cloud caching". This is an imposition by MS for whatever reason. One has to ask, why would a company like MS spend millions of dollars hosting additional servers for "cloud caching" if it doesn't have to??? Simple, because it wants access to your non-MS data.

Users that never liked Outlook where using alternative email client even when Outlook 2013 or whatever were a viable option, so?

MS is not forcing anyone to install the new Outlook or buy a subscription, but if you want a free client is there for free.

But if you want to use a MS email account, you need a modern email client that supports OAuth, simple as that.

Also did you know that Google/Gmail will also transition exclusively to OAuth 2.0 September this year?

Then after the transition, if you wan to access your Gmail accounts you will need a client that support OAuth or you will not be able to access your email.

So, Google got this wrong too?