Hi Jimcesse,
Thanks for your feedback. From the result, we can see the custom domain has been verified in your Office 365 tenant. What you have done is correct, we should add this custom domain as an alternate UPN suffix in local AD. Based on our experience, the error mentioned above will not affect the DirSync deployment. You can just ignore it and continue setting up DirSync. Besides, here is an article about DirSync for your reference: technet.microsoft.com/.../hh967642.aspx
Thanks,
Young Yang