But why are they storing the passwords on any server at all?
The standard mail client on iOS and Android can get mail without the need for a proxy, even from Exchange accounts. They have no need to store emails and passwords on a third party server, over which the user and their employer have no control...
Until there is an option to use the Outlook app without using the proxy, it cannot be taken as a serious business solution. Which is a shame, because the app itself looks fairly good.