I've recently upgraded from the legacy DirSync (without password sync) to Azure AD Connect. The process was fairly smooth other than a small bug in the wizard: it was looking for a group called 'FIMSyncGroup', but it didn't exist. The group was actually called 'MIISAdmins'. I renamed the group to 'FIMSyncGroup', clicked retry on the wizard and the upgrade was fine.
Everything is working without any problems. We have a Hybrid environment with O365 and also use ADFS so the domain is Federated. We have decided to move away from ADFS and use Password Sync instead. The problem is I can't enable the Password Sync option in the Azure AD Connect wizard as it is greyed out.
I thought password sync could be enabled even if the domain is federated. Have I missed something?