I just ran into the same problem, however mine cropped up after out Office 365 account was upgraded.
After some trial and error, and finding this post, I was able to get this working again and send to email addresses inside and outside my organization without having to use any workarounds. My settings are as follows:
Host Name - smtp.office365.com
Port - 587
User Name - example@example.com
Password - examplepassword
Require SSL - yes
Default Days to keep Logs - 90
Retry Limit - 5
Retry Interval - 1
Default sender Email - same as username above
Not sure if anyone is having this problem anymore, or if the Office365 upgrade fixed it, but it is possible now.
-Ben
