Is this really such a unique situation? Surely others have 365 MFA and use Sage.

It's entirely possible that it isn't supported by Sage 300.  Based on a Google search I found the link below and it talks about Office 2013 not supporting it.  Nor "Any client that uses legacy mail protocols such as IMAP/SMTP/POP3".  I suspect the Sage 300 email engine falls into that category.

docs.microsoft.com/.../concept-fundamentals-block-legacy-authentication

A client just informed me that the APP password works.  His email was as follows

The APP password works in Sage 300!
Also works in Sage WageEasy.

For your reference this is what I had to do:

1. Open www.office.com
2. Enter email address
3. Enter normal email password
4. Enter the security code if necessary
5. At the screen that shows apps (eg outlook, onedrive, word, etc) press gear icon (top right)
6. Select Update contact preferences
7. Select Security & privacy (left side of screen)
8. Select Create and manage app passwords
9. Select create
10. Give the password a name eg Sage
11. Select next
12. Copy the password to the clipboard (you might have to do that manually)
13. Then go into the Sage setup screen for email and replace the email password with the APP password from the clipboard
14. Test

Thanks for that, can you tell me what they used for the SMTP address?

smtp.office.com

or

mycompany-com.mail.protection.outlook.com

Sorry, no idea, try both