With self-hosting you get to use thing now considered legacy (e.g., IMAP servers), but I definitely have seen them working for organisations with thousands of employees. You’ll need staff to support it, too, but at some scale it will none be more expensive than cloud services. Yet, you’ll have more control over it.
OTOH, some things will definitely be less feature-rich, for example, on-prem Sharepoint (not that I recommend using it) may not live up to the expectations of users familiar with the online version.
I mean, given this was possible:
> used a password spray attack to compromise a legacy non-production test tenant account and gain a foothold, and then used the account’s permissions to access a very small percentage of Microsoft corporate email accounts
pretty much anything is going to be better than letting Microsoft host your email/corporate data