Hi Keef,
I would like to answer the questions one by one:
Q1: What impact will this have on the existing users? Will it affect their current passwords
A1: After the custom domain is converted to a federated domain, the existing Office 365 users may be prompted to enter their passwords when they re-connect Office 365 services. Then, they need to type in their local AD credentials.
Moreover, federating the custom domain won’t affect the local AD users’ passwords.
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Q2: Is there an easy way to confirm the deployment before federating the domain? I'd like to avoid any outage to the users.
A2: As far as I know, no official document about it has been published yet. Based on my experience, letting their Office 365 passwords be the same as their local AD passwords can improve end user experience.
Thanks,
Claud