Problems with AD proxyaddress, DirectorySync and Office365

Using the proxyaddress field in local AD, I was able to correctly update the email fields in Office365. 

AD  email addresses information for account that was renamed from jimtest to jimtest1.
Email                     : jimtest1@live.mercer.edu
ProxyAddresses            : {SMTP:Jimtest1@Live.Mercer.edu, smtp:jimtest@Live.Mercer.edu}

Office365 values:
EmailAddresses                : {smtp:jimtest@Live.Mercer.edu, SMTP:Jimtest1@Live.Mercer.edu,
                                          smtp:jimtest@livemercer.onmicrosoft.com, SIP:JimTest1@live.mercer.edu}
PrimarySmtpAddress            : Jimtest1@Live.Mercer.edu
WindowsEmailAddress           : jimtest1@live.mercer.edu


Problem:
Not able to send from local Exchange to Office365 for this account.  Email is queued to the unreachable queue in the local Exchange system.  Anyone else having this issue?
This is a valid email account in Office365 that I use for testing.

Identity: lemondrops\Unreachable\32646477
Subject: Test message to Office365 tenant
Internet Message ID: <9BF995BC0E47744E9673A41486E24EE2579C6F2980@MERCERMAIL.MercerU.local>
From Address: SCHORTINGH_J@mercer.edu
Status: Ready
Size (KB): 5
Message Source Name: FromLocal
Source IP: 255.255.255.255
SCL: -1
Date Received: 5/8/2013 12:48:59 PM
Expiration Time: 5/10/2013 12:48:59 PM
Last Error: The mailbox recipient does not have a mailbox database
Queue ID: lemondrops\Unreachable
Recipients:  jimtest1@live.mercer.edu

Thanks.

Jim Schortinghouse

Mercer University IT