Hi @ToryDav ,
I experienced the same issue and i was able to find a solution. The reason why this is happening is because all internet traffic is blocked until there is a successful VPN connection.
In order to push from your MX a custom DNS suffix to your client devices, please review this.
Regarding the SSO issue, there is a feature under preferences part 2 of your screenshot "Allow access to the following hosts.." that allows you to include URLs, which will be accessible before there is an established VPN connection. I run packet captures and filtered the traffic to capture the the URLs used for Azure AD SSO, and i added them to the profile. login.microsoftonline.com works for authentication, login.live.com works for password resets.
Please see sample XML below. There is no enforcement of "Always On" policy with this; whenever users connect to an unknown network, the get prompted through the anyconnect SSO popup authenticate and start a VPN connection; they can browse the internet with or without an established VPN connection. Always On can always be enabled, it will work as well, however, the only accessible hosts before a VPN connection gets established, will be the ones under Allowed Hosts.
<AutomaticVPNPolicy>true
<TrustedDNSDomains> Connection Specific DNS Suffix</TrustedDNSDomains>
<TrustedNetworkPolicy>Disconnect</TrustedNetworkPolicy>
<UntrustedNetworkPolicy>Connect</UntrustedNetworkPolicy>
<AlwaysOn>false
<ConnectFailurePolicy>Open
<AllowCaptivePortalRemediation>true
<CaptivePortalRemediationTimeout>5</CaptivePortalRemediationTimeout>
</AllowCaptivePortalRemediation>
<ApplyLastVPNLocalResourceRules>false</ApplyLastVPNLocalResourceRules>
</ConnectFailurePolicy>
<AllowVPNDisconnect>true</AllowVPNDisconnect>
<AllowedHosts>login.microsoftonline.com,login.live.com</AllowedHosts>
</AlwaysOn>
</AutomaticVPNPolicy>