Hi Catherine,
Thank you for taking the time to document this issue. I wanted to share an update that may be relevant to everyone following this thread.
Microsoft has now published Service Health advisory EX1528992 for Exchange Online, which appears to closely match the behavior described here.
According to the advisory, affected users may:
- Be unable to open email attachments in New Outlook.
- Receive a message indicating that the file cannot be opened and that Outlook should be restarted.
- Find that the "Open" option is no longer available after the error occurs.
Microsoft has identified the root cause as a recent update to Edge Version 156 that unintentionally enabled an unnecessary configuration, resulting in this behavior.
Microsoft has already developed and deployed a targeted fix. Based on the latest update, the change may take up to 12 hours to fully propagate across the service infrastructure. Once the fix has reached your environment, users may need to close and reopen New Outlook before the issue is resolved.
If your organization has access to the Microsoft 365 Admin Center, I would recommend asking your administrator to review advisory EX1528992 in Health > Service health to confirm whether your tenant is affected.

In the meantime, the documented workaround remains to use Save As to download the attachment before opening it, or continue using Classic Outlook or Outlook on the web if those options are currently working in your environment.
Based on the information Microsoft has published, this now appears to be a known service issue rather than an isolated client configuration problem.
Thank you again for raising the issue and sharing your troubleshooting results. Hopefully the service-side fix reaches all affected tenants soon and restores normal attachment-opening behavior.
Kind regards.