Hi everyone! I'm an IT guy in a mixed house, where about half our users use Macs. Naturally, some of them have installed Office 14.5.0 and are running Yosemite 10.10.3, so some are having this issue, including myself.
I'd discovered on my own that trashing prefs and clearing the prefs cache works around the issue (but does not resolve), but I'm grateful to those who posted the Terminal commands because it got me thinking: Is there a single terminal command that could do what needs to be don to work around the issue, without the need to lose a bunch of prefs?
After some trial and error, I discovered that yes, there is.
defaults write com.microsoft.Outlook "NSOutlineView Items MailNavigationPane" -array "Unified Inbox"
That doesn't seem to even require a prefs cache purge. Basically, it removes the pref set by Outlook when you expand a folder on the sidebar, and returns it to the state where everything's closed. Now, I don't know what "Unified Inbox" refers to here, but I think it is related to the preference for "Group similar items together." I think it may only have meaning in that context.
Please try this and let me know if it works for you.