Thanks all for sharing your experience. I have finally done the following to carry on syncing:
(1) Uninstalled all Apple services: update, mobile sync bonjour and anything else I could find that was provided by Apple (see Remove and reinstall iTunes and related software components for Windows Vista, Windows 7, or Windows 8 - Apple Support
(2) Restored Windows 8.1 to a relatively recent restore point.
(3) The restore also provided me with the previous version of iTunes 12.0.1.26x64 in the Download folder (and not the later iTunes 12.1 version)
(4) I installed this in Program Files (x86) - my first attempt to install this version of iTunes in Program Files did not work.
And I am now able to sync Outlook 2013 with my iPhone/iPad Air.
Also I have unticked the alert me to iTunes update in preferences ... just to be sure that I don't get into this mess again.
Just wondering how long does it take Apple to fix things that they are aware of - or is it a case of working to their next update schedule.