I added the public domain as you suggested. changed the UPN on ADUC to domain.com from domain.local. Do I have to change every user UPN manually? that would be a very tedious manual task. Is there a script to do that? I checked on Office 365 portal and user UPN is still domain.onmicrosoft.com. I'm not sure where you saw it's domain.local. I changed a few manually to domain.com on Office 365 portal.
So, I'm still not able to figure things out for this one specific user. Most users don't have a proxy address in lower case smtp. This user does and it's set to an old domain we used to have. I tried removing it and adding a new entry with lower case smtp and the same address as upper case SMTP, it won't allow me. says address already there. I tried pretty much everything possible to configure Outlook on her laptop with no success.
How about configuring Outlook for non-domain computers? I spent an hour this morning trying to configure outlook for a computer that's not on our Active Directory domain and it simply won't validate the account. keeps asking for credentials. both. both domain and cloud passwords are the same (synced).
I also tried setting up a pop account but it fails to authenticate. I can login on webmail fine from the same laptop. I used outlook.office365.com as the POP address and smtp.office365.com for the SMTP address.