Hotmail Password Incorrect - nothing works! dang it!

Hi,
Looking for help after updating an iPod to iTunes 10.5. Hotmail email account no longer works.
I have deleted the email account on the iPod and tried to re-establish the Hotmail account in the Add Account section using 3 methods: Microsoft Exchange, Windows Live Hotmail, and Other. In all three cases, I received the "Password Incorrect" error message.
I have also reset my Hotmail password on desktop computer, and this didn't change anything.
I also wiped & restored the iPod in an attempt to start from scratch, but still got the same error message.
Not sure what else to try since I'm getting same error message using every conceivable way to establish the Hotmail account on my iPod. Again, it worked perfectly prior to recent 10.5 update.
Also, fyi, haven't been able to establish my iCloud account yet, either, which may be related to this as well? not sure.
Thanks in advance for specific recommendations (beyond the methods I've already tried). Thanks!!!!!!!!!!

Hi, just to clarify, the iPod was recently updated, now running iOS 5.0

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http://www.engadget.com/2013/08/14/outlook-outage/
http://www.infoworld.com/d/applications/microsofts-skydrive-outlookcom-are-down- some-users-224940
http://mashable.com/2013/08/14/outlook-down/
http://techcrunch.com/2013/08/14/microsoft-acknowledges-outlook-com-messenger-sk ydrive-outages/

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Hotmail Password Incorrect - nothing works! dang it!

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