I think there is a difference between basic auth and authenticated smtp.
My diagnostics say:
Your test results are indicating that Basic Auth is disabled for your organization (this is the default). I have had Basic Auth in use, and so my results are different. In the Protocol to Enable dropdown, SMTP is not listed, because it will not be disabled by default for those organizations who have been using it. However, IMAP is listed.
K9-Mail in their recent 6.2 version broke functionality with Office365 - so that was unfortunately not a good test and does not indicate a problem with your credentials. If you can test with a previous version of K9 or any other app that would help. I believe your organization settings do not permit using an app password. This is the new default setting.
EDIT: I think “Basic Auth” and SMTP Auth are interchangable. Try with another app - we have not yet confirmed your credentials are good.