I suppose the cause here is the HAB root group "contoso" missing the value "IsHierarchicalGroup", which means you missed this commend:
Set-Group -Identity "Contoso" -IsHierarchicalGroup $true
The root group Contoso is also supposed to be in the result of the commend Get-Group -ResultSize unlimited | where {$_.IsHierarchicalGroup -match 'True'} | Format-Table SeniorityIndex,PhoneticDisplayName,DisplayName -Auto.
Below are some screenshots from my test.
1.Didn't run the commend Set-Group -Identity "Contoso" -IsHierarchicalGroup $true
Contoso is missing from the result
Outlook shows the same error
2.run the commend Set-Group -Identity "Contoso" -IsHierarchicalGroup $true afterwards
Contoso is listed in the result
Outlook displays HAB correctly
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