After reading this thread, I just set up a new email under "outlook". I remembered that I had two step verification set up. So here are the steps I used and I got it up and running in about 2 minutes.
login to account.live.com
click 'change password & more'
go to 'identity verification apps'
Choose the iPhone button
use the Google authentication app to provide you a code as directed.
enter the authentication code then you will be provided a super long 16 digit (I think) app password. You will only have to enter this one time when asked for your outlook password when you setup your hotmail account on your iPhone.
That's it. Again, just about 2 minutes invested after spending 35 minutes at the Apple Store.
I Suppose you could just turn off two step verification 🙂
Note to Apple: Using this forum on an iPad was VERY difficult.