I stumbled upon this problem this morning.

I have 2 systems running, one with 7.10 and the other one with 8.04. Now
I needed to configure evolution on my 8.04 system and had the same
issue, that it was coming back over and over again with the password
prompt. No inbox available either, nothing.

I took the easy way out by forcing a downgrade of evolution-exchange
while the 'not working' mail profile was still in evolution. I launched
it and cause of dependency mismatches, nothing was available either.
After that I decided just to wait for a solution, search a bit on the
net for possible solutions (nowhere to be found, unless you build it
yourself it seems)

Cause of the dependency issues, normal updates won't work either
anymore. So I did an 'apt-get -f install' which causes the evolution-
exchange to update to the current version again.

I launched evolution again to configure another account and discovered,
that miraculously the exchange profile was working!

I'm not into linux/C(++)/apt yet, but maybe there is a conversion issue,
together with creating a new empty exchange profile over here.

Could someone test this 'work-around' over here?

1) leave the not working exchange profile in your current version of evolution
2) download evolution-exchange_2.12.0-0ubuntu1_amd64.deb (or the i386 
alternative if you're running 32 bit) from 
http://packages.ubuntu.com/gutsy/evolution-exchange 
3) close evolution and install the package by: apt-get --force-all -i 
evolution-exchange_2.12.0-0ubuntu1_(architecture-you-have).deb
4) fire up evolution and see the profile is in there, but without any folders 
in it (this part I forgot but I might have tried work off / online again to 
force an authentication, which is almost at the bottom of the file menu)
5) close evolution
6) run apt-get -f install again to recover from dependency issues
7) fire up evolution

-- 
Evolution will not authenticate on Exchange
https://bugs.launchpad.net/bugs/207723
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