I experienced the issue others experienced where my O365 contacts were all appearing offline. I found the thread in the forums that referenced feature request 62 which stated that a commit was made to 1.16.1 to fix it. I was already using 1.18.0, however and still experiencing the problem. I downgraded to 1.16.1 and my contacts once again looked normal.
Is it possible the commit for FR #62 was somehow removed in versions later than 1.16.1?
I'm compiling from source on Xubuntu 12.04.4, kernel 3.2.0-61, gcc 4.6.3, pidgin/purple 2.10.9.
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