STEPS TO REPEAT CURRENT BEHAVIOR:

1. Generate app password on Outlook.com 

2. Setup 2-step authentication enabled Outlook.com account in Microsoft Outlook for Mac

3. Error: "The server for account "[account]" retuned the error "Logon Failure: unknown user name or bad password."

DESCRIPTION OF OTHER RELATED/SIMILAR ISSUE:

1. Generate app password on Outlook.com

2. Setup 2-step authentication enabled Outlook.com account in Microsoft Outlook for Mac client.

3. Works until I quit Outlook. Then, when Outlook is reopened, prompts for password appear OR the error described above appears.

CHECKED:

1. Absolutely certain the correct app password was entered (copied and pasted); generated multiple passwords and tried multiple times.

2. I am certain it has to do with 2-step authentication because when I temporarily removed 2-step authentication, I was able to access my e-mail using Microsoft Outlook for Mac.

2. Tried using actual account password to no avail.

Very frustrated with Microsoft products in general at this point. I have 2-step authentication enabled on my GMail account and it works flawlessly in all my e-mail applications, including Microsoft Outlook for Mac. Seriously considering shutting down all Microsoft products, both personal and business, and moving onto Google. Tired of being an involuntary Microsoft product beta tester!