You have removed hotmail account from Thunderbird. So I'm presuming you do not have that account in Thunderbird at this moment. Please check all the following is also removed.

Check outgoing server for hotmail account is removed

• Account Settings > Outgoing Server (SMTP)
• REmove the hotmail/smtp.office365.com smtp from the list.

Check cookies are enabled

• Menu > Settings > Privacy & Security

Under 'WEb Content' section

• Select checkbox: 'Accept cookies from sites'
• Accept third party cookies: 'Always'
• Keep until: 'they expire'

Check passwords are removed: Whilst in 'Privacy & Security section...

• Scroll to Passwords section
• click on 'Saved Passwords'
• Click on 'Show Passwords'
• Locate any line which mentions the hotmail account and clickon 'Remove', so no passwods are stored for the account.
• click on 'Close'

Check javascript is enabled:

• Menu > Settings > General
• Scroll to bottom
• click on 'Config Editor'
• In top search type: java
• look for : javascript.enabled
• If it = True - all is ok
• If it = False, then use right toggle icon to set as True.

Exit Thunderbird

Check - if using a VPN - switch it off Check - if you have any program using the localhost eg: Apache - switch it off - note you can switch it back on after setting up hotmail.

Start Thunderbird.

Menu > New > Existing mail account

• Enter name
• Enter email address
• Select to remember password

• click on 'Configure Manually'

Incoming:

• Select protocol 'IMAP'
• Incoming Server : outlook.office365.com
• Port: 993
• Connection Security: SSL/TLS
• Authentication Method: OAuth2
• User name: full email address

SMTP outgoing server

• server name : smtp.office365.com
• Port: 587
• Connection Security: STARTTLS
• Authentication Method: OAuth2
• User name: full email address

Click on 'Done'

You should get a pop up from MS Office asking for email address and password (same password you use to access webmail account) this is to confirm you really are you and to allow Thunderbird access to server.

Does not work. The Microsoft Hotmail prompt will not accept the correct password as typed. That same password works fine when I log into the outlook.live.com website either using Bitwarden or manually entering it.

I removed Thunderbird, altogether.