I'm not from Microsoft but have been a long time Photosynth user and have seen several other people have this same problem.
The problem may be that your Microsoft Account has 2 factor authentication enabled.
Older applications like Photosynth's desktop application don't have a sign in form that knows about 2 factor authentication, so you have two options.
Option 1: Keep 2 factor authentication enabled at http://account.live.com and go to that page and ask it to generate a new 'app password' for you to put into Photosynth's desktop application.
Option 2: Turn off 2 factor authentication at http://account.live.com and use your normal password wherever you want.
Please write back if neither one of these options solves the problem for you.
Your fellow photosynther,
P.S. You may want to try out the Photosynth 2 beta at http://photosynth.net/preview
Shooting for it is a little different than the original Photosynth: http://photosynth.net/preview/help