1) The job to process IM policies doesn't always run on a fixed schedule - I have seen posts where they believe it only runs once a week (!). However, in my testing, I found that to be off; in my tests it took over 2 weeks (approximately 15 days).
2) Issue has been reported to Microsoft.
3) Response from Microsoft - they broke it, not sure when it will be fixed and have disabled the functionality (however, it can still be set up in Online so they didn't disable the entire feature).
I'll post back if I ever hear back.