"Outfit" can mean "a branch of the military," like a division. If that's what it means here, then both sentences are perfectly correct. "Which outfit was he in?" "He was in the 2nd Armored Division." "Which outfit was he with?" "He was with the 2nd Armored Division." I don't think there are any differences in meaning.

in. "wearing" would also be correct

Both are correct as outfit has more than one meaning. Outfit can mean a group of people undertaking a particular activity together. In this case we would say - He's with the Jehovah's Witnesses. Outfit more commonly means the clothes you are wearing. In this case, we would say - Look at that amazing outfit she's in.

The first one