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Well done, Xero
This sounds like an excellent move from Xero. If O365 can be integrated into the Xero practice management suite, then one starts to get a truly integrated best-of-breed solution. For my money, Outlook is far and away the best email software and, in O365, you get the option to use Outlook both locally and via the cloud. Integrating that with Xero should allow seamless communication so that, for example, an email to a client about a transaction in Xero can be tracked from within Xero or Outlook.
I hope that the other cloud bookkeeping solutions follow Xero's lead!