Outlook 2016 doesn't accept password or app password

Try to set the Google DNS servers as in the image, I could no longer add my @hotmail.it accounts to Outlook 2016, by setting the Google Servers I succeeded.

I can confirm. Using the button "switch to Modern Auth" (translated from German, English button may be different") in settings of MS account on Android will - not - display the loginscreen posted by David.

Sometimes, GMail tries to open an URL starting with "login.microsoftonline" in the string. Within under a half second the window is closing without any interaction.

Same behaviour if GMail is set to open URLs in "own application" or "new Chrome window".

Since you are in the know, may I ask if MS is working with Google to strengthen and sort out the OAuth issue on their EAS protocol stack? Or is MS only supporting IMAP for Hotmail accounts on Android? If you guys can make this clear, it will help us find solutions or find ways to move forward.

The screenshot you posted suggests EAS is at least working with Thunderbird's plug in. What about Gmail? Or are both MS and G refuse to work with each other to resolve this? If latter, MS will be on the losing end of this and I am saying this as sincerely and honestly as I can be.

Outlook for Android doesn't have the issue. People don't want to use it because it's not just an email "client" but rather a data scrapper for Microsoft. It will access and take all your 3rd party data from non-Microsoft sources, including data you have from other non-Microsoft account synced on your phone, and not just non-MSA you added into Outlook for Android. You can think of Outlook for Android (or IOS for that matter) as a data gathering gateway just like how Facebook access your contacts, search, location, messages. Microsoft is doing the same by masquerading all of that efforts in the new Outlook family of apps, which includes Outlook for Android, Outlook for iOS, Outlook for MacOS, and the "new Outlook" for Window The MS employees here are sensitive or dismissive to these concerns, but most people do care. The EU government is looking at this as well.

The issues people are having is using EAS protocol to access Hotmail accounts by using device's native email client, i.e., GMail for Android or Mail for iOS. MS is messing with the EAS protocol authorization method, or that Hotmail accounts does not support OAuth as suggested. For EAS on mobile, you just don't have any access at all if you are hit with the password prompt. Basically, you are locked out during that time. MS already said that they added some code to guard against brute force attacks and their code misidentify our legitimate access, so it blocks those authentication attempts hence you are getting credential prompts.

People are also having issues with older desktop Outlook, basically 2013, 2016 and 2019. The only version works is 2021. In this case of older Outlook versions, people can dismiss the password prompts and sometimes Outlook will stay connected and sync emails and other data. Outlook desktop seem to establish multiple data sessions, so even if you cancel the password prompts, it seems to have some sessions alive enough to still sync some data. Some days, you get a ton of those prompts, and even if you can dismiss them, it does become a headache and distraction.

People are then also having issues using with EWS protocol and those are 3rd-party desktop email clients. This is similar to EAS in that once you are hit with the issue, you can't connect at all when the server is blocking your authentication attempts.

What Outlook app are you using?
I have my hotmail account installed on the free Android Outlook app and it's working fine.

My only issues are on my PC with Outlook 2013.