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.
It seems to be more than just IMAP and free. Microsoft Office 2021 Pro Outlook (paid) with account configured as Exchange also experiences the issue as do some paying Outlook 365 subscribers. I agree with you about Microsoft's general sense of prioritization, and maybe that is whey they reacted so slowly but think (at least hope) this may have gotten big enough to become important even to them.