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So even if the picture sync process between Exchange Online and Share Point Online has completed successfully, the photo will not display in Share Point until the thumbnail photos have been created.
It is also good to note in some cases it may take up to 72 hours before the user photo may show up in Sharepoint Online.
Uncheck the option in the default role assignment policy (Or other policy applied to your users), for "My Personal Information".
It is recommended to remove the ability in Exchange, because doing so in Sharepoint will cause replication issues when it tries to sync to EXO.
Uploading photos using the Set-Userphoto cmdlet, I recommend using this cmdlet below to create your session. Using this proxy method, you can upload larger files up to 4MB.
For testing purposes I have uploaded a file as large as 4MB.
This feature requires you to use a Microsoft Exchange Server 2000, Exchange Server 2003, or Exchange Server 2007 account in Cached Exchange Mode.
Most home and personal accounts do not use Microsoft Exchange.
The best way to accomplish this is by using the Set-Userphoto cmdlet like below.
It is best to use the Set-Userphoto cmdlet up update the O365 object.
Updating the thumbnail photo on premise and syncing the changes to O365 will update on premise, however EXO does not look on premise at that attribute for changes again.
In short, the photos are essentially stored in two places.
In Office 365 there are 3 Active Directory systems, Azure AD (the portal) Exchange Online AD(EXO) and Share Point Online AD (SPO).
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Going forward, for Hybrid Deployments, I advise to set the users photos in the cloud.