Because older versions of Word do not support the Dialog API we display the authentication process in the Task Pane because it cannot be iframed in for obvious reasons. This process has never been an issue before so I do not understand why it is now.
What is the recommended way to provide Microsoft OAuth when the Dialog API is not available?
This seems like an error in the review - apologies for that; there's no problem with having the OAuth flow in the TaskPane where DialogAPI is not supported. I believe this rejection item was removed in the subsequent submission of your offer