There are three core identity scenarios in Office365 as illustrated above. I created a previous blog post on how to covert cloud identities to federated identities which can be viewed HERE
To convert cloud identities to managed identities with password sync can be quite simple by changing the users UPN and also matching the user’s UPN with their primary smtp address.
However , How many time have you received the dreaded email from Microsoft like below
|Unable to update this object because the following attributes associated with this object have values that may already be associated with another object in your local directory services: [ProxyAddresses SMTP:email@example.com]. Correct or remove the duplicate values in your local directory. Please refer to http://support.microsoft.com/kb/2647098 for more information on identifying objects with duplicate attribute values.|