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Syncing with Exchange should be pulling from the server, just like the desktop clients do. I haven't had the "luxury" :) of being able to do this, but we're testing the exchange features soon so we'll see how it goes.
It still sounds like a permissions problem. Have you tried temporarily giving the end-users domain admin permissions? Try that and then sync and see what happens. At this stage, you shouldn't assume anything.
Hate to mention it but you might have to contact MS. You could also try looking on some Exchange/AD forums.
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