Since moving to Office 365 I have seen a couple of instances where contacts are multiplying like rabbits. The only thing that I can find that seems to trigger it is searching for contacts on the mobile device (iPhones and iPads in particular).
I found many others with the same issue on Apple’s support site (https://discussions.apple.com/thread/3643364?start=45&tstart=0) and on Microsoft’s support site (http://community.office365.com/en-us/forums/160/t/23765.aspx) with no good way to resolve the issue.
I found that by removing all contacts on both the iPhone and iPad at the same time and then re-syncing the contacts that helps to stop it from continuing (for now), however you are still stuck with many duplicates in Outlook/Exchange. I found this great (free) addin for Outlook called “Outlook Duplicate Items Remover 1.4.4” that works great! Check it out at http://www.vaita.com/ODIR.asp and get rid of your duplicates.
Hope this helps!