Unable to sync Hotmail account using IMAP, Server Response: AUTHENTICATE failed

Split from this thread.

I have similar issues using WLM on W7. I have two hotmail.com accounts - one works fine, the other has suddenly stopped. 

This is the error:

Unable to send or receive messages for the ****** account. Header download for the '*****' folder did not complete. Your server has unexpectedly terminated the connection. Possible causes for this include server problems, network problems, or a long period of inactivity.

Server Response: AUTHENTICATE failed.
Server: 'imap-mail.outlook.com'
Windows Live Mail Error ID: 0x800CCC0F
Protocol: IMAP
Port: 993
Secure(SSL): Yes

Obviously I have checked password is correct, and turned AVG off and on again...