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We have released Multi-Factor Authentication (MFA) for Office 365 with the Office 365 blog announcement. Along with this update, App Passwords for federated users was also released.
This expands the MFA offering we had for admins, to users of Office 365. This will allow organizations with Office 365 subscriptions to enable multi-factor authentication for their Office 365 users without requiring any additional purchase or subscription as long as you have at least one Office 365 subscription of any type.
Overview of MFA for Office 365
You can read up more on MFA for Office 365 here and on advanced features of Windows Azure Multi-Factor Authentication here.
There are some known applications that do not work with App Passwords…
For a list of supported applications, go to http://technet.microsoft.com/en-us/library/7a9c56cf-72f1-4797-8e86-a9a2d9569ef6#whatareapp