I also got the "Application-specific password required" error when attempting to use my gmail as my email server. As I had 2nd factor turned on, I found that I needed to set a separate app-specific password. After discovering this existed, this is how I'd want to do it anyway, even without being forced to. That way, I don't have to put my password that I use day to day for google into the splunk settings. You can set an app password via https://myaccount.google.com/apppasswords Here is the help if you need further information. https://support.google.com/accounts/answer/185833?hl=en
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