set folder=imaps://$imap_user:$imap_p...@imap-mail.outlook.com:993/
set smtp_url = smtp://$imap_user:$imap_p...@smtp-mail.outlook.com:587/
set spoolfile = "+INBOX"
set postponed = "+Drafts"
set record = "+Sent Items"

set ssl_starttls = yes
set imap_passive = yes
set imap_keepalive = 300
set imap_idle

set signature=~/.signature

I am FAR from an exprert, but I see a couple of differences between your .muttrc file and mine. I do not use Outlook.com, but I do connect to an IMAP account.

In my case I have a line that says:
set smtp_url="smtps://j...@jfniendorf.org@server_name.com/465"
I have another line that lists the smtp password:
set smtp_pass="dummy_password"

For the set folder lines I have:
set folder="imaps://server_name.com:993"
set folder="imaps://server_name.com/INBOX." This is followed by the login and password information:
set imap_user="j...@jfniendorf.org"
set imap_pass="dummy_password"
--
John

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