That failure may have orphaned something. It may make sense to open a ticket with 365 support to see if they track this down.
Is this being synced from on-prem or is everything homed in Azure?
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I recently tried to upgrade a distribution group to an Office365 group. When that failed, I changed the existing distribution group's email addresses (Primary and Alias) and then created an Office365 group. When I go to change the 0365 Group's email address to the one previously held by the distribution group, I receive the error "This email address is already in use by an active group (xxx@xxx.com). Try a different email.". The address is not currently assigned to any group.
I tried waiting a couple days to see if the changes to the distribution group needed time to take effect to no avail. I also cannot change the distribution group's email address back to the original. PS Command Get-Group -identity "xxx@xxx.com" returns no results.
That failure may have orphaned something. It may make sense to open a ticket with 365 support to see if they track this down.
Is this being synced from on-prem or is everything homed in Azure?