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OK, let me ask another question then if I may. With E1, you don't get the full fat client Office applications. Do you have Office apps through other means on your users machines? And if so, does SSSO work OK for this apps?
Office 2016 is enough for what we need
- They aren’t part of Office 365 it was a volume license and works from a KMS
This thread may also prove useful to you. Looks like you are not alone in this, and this is perhaps expected behaviour at the moment.
Oh, one other question - is modern authentication enabled on your tenant? Specifically for Skype for Business (which relates to Teams)?
OK, so if SSSO works with those other Office Applications with MFA enabled, I would also expect it to work the same way with the Teams application. However, this is not the experience you are seeing, which brings us full circle to your original problem.
I have no other immediate suggestions for you i'm afraid, but I will think some more about this and if I find out anything further, I will let you know.