I believe the issue can resolved by creating a passkey on your device you're using to access this account.
I struggled with this now for over a week. I could get in if I used a password and then received a "push" approval from the Microsoft Authenticator. Once I did that in an "in Private" window I was offered the option to create a passkey for future logins. Since I did that I have not had an issue accessing my Outlook.com account.
Something broke somewhere in the past week or two.