@Luster Mark , The description provided above is little confusing. Let me share my understanding below:
We have an application hosted on IIS, and is added as a Relying Party on ADFS. Also, for this same app, an app registration is being done on Azure AD. Now when you try to access this app using a Microsoft account (like hotmail.com, outlook.com or live.com) it throws the underlying error:
AADSTS20001: The sign-in response message does not contain an issued token.
If this is the scenario, then based on my understanding the error looks legitimate. As mentioned by you, the users being used to login to the apps are all synced users from your on-prem AD environment to your Azure AD tenant and then second thing is that your on-prem domain is added as a Federated Domain in Azure AD. Now when you access your app hosted on IIS, it first redirects the user to ADFS for it to get authenticated, but then ADFS redirects it to AAD. When the user enters the Microsoft account in the username section of AAD, some how AAD is not able to find it and then it redirects it back to the ADFS server again since the domain is federated.
Correct me if I am wrong in my understanding. But if this is the case, then I would suggest you register the application in any one of the IDPs either on Azure AD or on ADFS. If you register the application on Azure AD, then you would be able to login using Microsoft account as well as Work or School account based on the configuration you make while registering
this app in Azure AD. Secondly, if you plan to use ADFS, then only on-Prem users would be able to get authenticated using the UPN that is being used for your on-prem domain.
Hope this helps.
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