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Hi Simplysql,
When Multi-Factor Authentication and app passwords are enabled for a user, he should use the app password instead of the Office 365 password to login to a site in SharePoint Designer 2013.
Based on my test, if we still use the Office 365 password in SharePoint Designer 2013, we will get the following error.
Instead, we should use the app password we got when we set up Multi-factor Authentication.
If the app password is lost, please ask you administrator to disable and re-enable
Multi-factor Authentication for your account.
If the above is not your scenario, please share more information about the situation.
Regards,
Jiaxing