what brand MFPs are those?
My Canon's do fine with 1.2 to MS.
Do you set up the MFP with credentials from a M365 user?
Yep, need a licensed account, and the lowest priced one doesn't work. I forget what it's called at the moment, but you need a license that includes the local apps.
Even if you go with option 1, not sure why the lowest account with an email account wouldn't work?
Because the lowest cost email account is online only. A local device can't login.
I don't understand - why can't a local device login? Sure it likely can't use modern auth - but normal SMTP logon should work (though I think MS is killing that)
Also, as I mentioned - i'm using a totally free account (a shared account - shared only with me :P) through option 2 in the link I provided.