This is a legacy setup that can no longer be created. Microsoft removed the option to use a custom domain for Microsoft accounts many years ago, but hasn't forced people to change.

However, your friend can get out of this scenario by following the instructions on this site:

https://support.microsoft.com/en-us/account-billing/change-t...

They'll end up with <whatever_they_can_find>@outlook.com for their Microsoft account. When using Org services via a browser, you'll automatically use your Org account. When using consumer services, you'll automatically use your Microsoft account (assuming you've selected stay sign-in for both).