This problem is so widespread that every platform and every MS employee would have experienced it already. Of course, there is possibility that MS employee themselves do not use Hotmail, they know better :)
What is broken is IMAP connections. Most businesses use the new OAuth through an Exchange Server setting so the MS people are getting & sending email just as happy as can be. I found that the built in Windows 10 Mail program will allow me to connect that way, but OAuth is blocked for 3rd party apps fpr the free outlook.com emails. That is why, in my opinion, this is not a critical issue for them as it "only" breaks people who use the free version. For those that pay for Microsoft 365, you should be able to connect via OAuth - I know Mailbird can handle that.