When setting up Office 365 the following error is reported.
Cannot set the default domain to authentication type other than managed.
The Domain you are trying to Federate is not currently set as the Default Domain in the Office 365 Admin Portal.
You will need to set the onmicrosoft.com domain as the default in order to federate your current domain.
Note: Making this change may affect your new users creation in the Office 365 Portal. If you encounter any follow-up user creation issues when adding new users in the Office 365 portal, simply select the correct domain during user creation.