One of the delights in my job is when Microsoft give me a call and ask me how something works in one of their products! Such a call came today and it involved get Office 365 hybrid coexistence working with an Edge Server.
Exchange Server Deployment Assistant does not have the answer to this issue; it always refers to a Hub Transport server within the organization. But it was an interesting challenge, as the last time I tried to get this working I got a “a local loop detected” error.
In brief, its is possible to use Edge Server as the coexistence server between your organization and your Office 365 tenant, you just need to make sure that everything you would create on the Hub Transport is either configured on the Edge Server (receive connectors and certificates) or created within the organization and replicated to the Edge Server via EdgeSync (send connectors, remote domains, accepted domains).
The reason for “a local loop detected” error was down to having the service domain for the Office 365 tenant configured as Internal Relay (as it needs to be) and not having a Send Connector on the Edge Server that pointed to the Office 365 infrastructure.
Update 26 Oct 2011
In the above I wrote that the Office 365 tenant domain as configured on-premises needs to be internal relay. This is only required if your on-premises org contains Exchange 2003. If the minimum version of Exchange installed on-premises is 2007 then the domain can be Authoritative. This is because with 2007+ you can forward emails to an authoritative domain using contact or remote-mailbox objects and a send connector for the domain.