1.Determine the mailbox server name and the proxy server URL. To do this, follow these steps:
a.Sign in to the Office 365 portal.
b.Click Outlook to open Microsoft Outlook Web App.
c.In the upper-right corner of the page, click the Help icon (the question mark), and then click About.
d.On the About page, locate and then note the following items:
Mailbox server name: This is the mailbox server name.
Host name: This is the proxy server URL.

Remark: In step 1d above instead of the Mailbox Server Name I used the Exchange Client Access server Name. I followed the rest of the instructions as written and it works just fine in both Outlook 2007 and 2010.

2.Manually configure Outlook to connect to Exchange Online. To do this, follow these steps:
a.Click Start, click Control Panel, and then click Mail.
b.Click Show Profiles and then click Add.
c.Type a name for the profile, and then click OK.
d.Click to select the Manually configure server settings or additional server types check box, and then click Next.
e.Select Microsoft Exchange, and then click Next.
f.In the Server box, type the mailbox server name that you noted in step 1d.
g.Make sure that the Use Cached Exchange Mode option is selected.
h.In the User Name box, type your user name (for example, alias@contoso.com), and then click More Settings.
i.Click the Connection tab.
j.Make sure that the Connect to Microsoft Exchange using HTTP check box is selected, and then click Exchange Proxy Settings.
k.In the Use this URL to connect to my proxy server for Exchange box, type the proxy server URL that you noted in step 1d.
l.Make sure that the Only connect to proxy servers that have this principal name in their certificate check box is selected, and then type msstd:outlook.com.
m.Click to select the On fast networks, connect using HTTP first, then connect using TCP/IP check box, and then click to select the On slow networks, connect using HTTP first, then connect using TCP/IP check box.
n.Under Proxy authentication settings, select Basic Authentication.
Note: Users can also select Negotiation Authentication if the administrator enabled this option in the Office 365 portal.
o.Click OK two times.
p.Click Check Names. When the server name and the user name are displayed with an underline, click Next.
q.Click Finish.