UPDATE 9/30/2021: Microsoft has now fixed their OAUTH and the automatic setup will work again.

On September 24th, 2021 Microsft made some changes on their mail servers, which disabled OAuth login for the IMAP protocol on their accounts. Unfortunately, this affected all outlook.com, hotmail.com, live.com, msn.com and other free Microsoft account domains in our program, since we used this secure login method as default.
You can tell if your account is affected by a red triangle shown next to your account name. This account also cannot receive any new messages.

The workaround at this time is to set up the account anew manually either as Exchange or as Other (IMAP) to avoid usage of the IMAP-XOAUTH2 login.

Note: If you use 2-factor verification, you might need to create and use an App password for eM Client.

Manual IMAP setup (Other):

• Go to Menu > Accounts.
• Click the '+Add account' button.
• In the New Account window select Mail > Other.
• Insert your Microsoft account address
• Select IMAP.
• Insert these settings for Incoming server: imap-mail.outlook.com
• Outgoing server: smtp-mail.outlook.com
• Finish the rest of the setup
• Delete or disable your previous IMAP setup

Exchange setup:

• Download the attached registry file in this article.
• Run it while eM Client is still closed and confirm the changes it will make.

If you'd like to add the needed registry key manually instead of using our provided file:

• Run Regedit
• Go to Computer\HKEY_CURRENT_USER\Software\eM Client
• Add the DWORD item AllowExchangeOnlineOAuth and set its value to 0
• Then run eM Client 

To set up the actual account:

• Go to Menu > Accounts.
• Click the '+Add account' button.
• In the New Account window select Mail > Exchange.
• Use your Microsoft mail address for both the Email and Username fields. 
• Finish the rest of the setup
• Delete or disable your previous IMAP setup.