After configuring Outlook 2011 (Mac) to access two IMAP accounts hosted by Dreamhost AND Outlook is able to access the account,, after a little while I will constantly get notified with the following:
The server for account "" returned the error "Logon failure: unknown user name or bad password." Your username/password or security settings may be incorrect. Would you like to try re-entering your password?
It turns out that Outlook is disabling the authentication settings on the outgoing server - changing my setting from 'Use Incoming Server Info' to 'None'.
I haven't found this issue (yet) at http://answers.microsoft.com/en-us/mac. But, if I find or receive an answer there I'll update this post.