New Outlook does not work with Basic Microsoft 365 Business plan due to licensing restrictions

 I ran into a really odd error on a PC today. Basically you get an error from Outlook:

This account is not supported in Outlook for Windows due to the license provided by your work or school

when trying to set up an email hosted by Microsoft (custom domain).

As it turns out, the issue is that new Outlook does not allow Basic Microsoft 365 Business plan accounts to be added, due to licensing restrictions! So when I disabled the "New Look" and went back to the "old" version of Outlook, it worked just fine.

A nice summary of the issue is found here, by a detailed user feedback to Microsoft:

https://feedbackportal.microsoft.com/feedback/idea/2f7925cb-3a80-ee11-a81c-000d3ae46fcb