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As my research, this issue might be caused by incorrectly configured Autodiscover Service Connection Point (SCP) record in your on-premises Active Directory. When a domain-joined Outlook client launches, its first step in the Autodiscover process is to query Active Directory for this SCP record. If the SCP record still points to an on-premises Exchange server (or a decommissioned one), Outlook will attempt to authenticate against that internal endpoint. This internal authentication attempt uses legacy protocols (like NTLM) which send the username in the Domain\SAMAccountName format, matching the pre-@ behavior you're seeing and causing the lockout when the password differs from the cloud mailbox.
Could you try to check SCP Configuration:
Use PowerShell to inspect the SCP on the on-premises Exchange server:
Get-ClientAccessServer | Get-AutodiscoverVirtualDirectory | fl Name,InternalUrl,ExternalUrl
Ensure the InternalUrl and ExternalUrl point to the correct hosted Exchange Autodiscover endpoint.
If the AutoDiscoverServiceInternalUri value is populated, run the following command to nullify it. Repeat for all servers listed.
Set-ClientAccessService -Identity "YourOnPremServerName" -AutoDiscoverServiceInternalUri $null
Then, try launching Outlook again.
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