In case you haven't yet solved your issue, here's what worked for me. I'm pasting below from what I just posted to try to help someone else.
After struggling for several more hours with my issue adding my MSN mail account to my new iPhone6's iOS8, I finally figured it out! Apparently, this applies to Hotmail as well.
Here's the fix, in case someone else happens to need it:
- Instead of selecting Outlook.com or Other after tapping on "Add Account," select Exchange.
- Enter the username as the email address.
- Don't enter your password! From the desktop or laptop that you normally use to access your MSN/Hotmail email, log out of your email account and then log back in, go to your account settings, click on Security, and then request a temporary password for access via apps. That password will be a funky, long combination of random letters and/or numbers. It will appear on your computer screen right away.
- Enter that password onto your iOS8 device.
- Voila, you're done!