Brian Kelley is not happy that Office 365 limits password lengths:
I blinked when I saw the warning, “Your password can’t be longer than 16 characters.” I couldn’t believe that I had gotten that warning, so I erased what I had typed for a password and started typing 1, 2, 3, etc., to see if this warning did trip at 17 characters. It did. Why in the world is there a limitation on password length if you’re going to do a hash my password? And if you had to pick a limit, why 16 characters? Why not 50 or 100 or 255?
I’ll go one step further: there is never a good limit to how long a password should be. For services like these, Microsoft should have the plaintext version of the password (which again, should be a string of an arbitrary length) only enough to perform an adequate number of rounds of hashing and salting using an appropriate hashing function (e.g., bcrypt). At that point, once the password gets hashed, the hash is always the same length, meaning the length of the plaintext is irrelevant for storage.