I think that these two problems are related. If it prompts for passwords and does not let you in on the web client and you can't configure the Outlook client, it sounds like you may not be full authenticated to your domain. You have to be to use it in "on-premises" mode.
If this is the case, IFD will help, because you can authenticate Outlook and web without having to be on the domain.
You probably will want to talk to Microsoft support, and they can help you work out any SPN issues that might be giving you these headaches.