I think some things needs a clarification. First, you don't have to enter username/password in Outlook when sending every email. The password is stored in the Outlook account and is entered only once when the account is created. Of course, Outlook will ask the user for new password if it was changed on the server.
Second, there is an option in Outlook called SPA (Secure Password Authentication). This type of authentication use NTLM and does not need to know username/password because it takes it from the user currently logged to the Windows workstation.
KMS supports NTLM in Windows domain. Following requirements must be fulfilled:
* KMS must run on Windows
* Outlook must run on Windows computer added to the Windows domain
* User must be logged to Windows domain
* KMS must be properly configured: user account is authenticated against NT domain or Kerberos, Windows NT domain in Domain Settings must contain correct NT Windows domain name
According to the error message, the user is trying to login to some NT domain but KMS is not configured properly. I would suggest to enable Authentication module in the debug log and open a ticket on our technical support.