
Got the Reply from Microsoft Suport -
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Microsoft Dynamics GP does not support using Windows Azure’s SQL Database feature that provides a database-as-a-service.
Since this hasn’t been tested, it would be considered an unsupported environment. I do have the following links to some forum and blog posts that do go into the setup of this type of environment, so it does look doable; however, it would still be an unsupported environment as it hasn’t been fully tested.
Dynamics GP does not work on Azure SQL cloud database. The name DYNAMICS is a reserved word on Azure SQL, therefore you would need to create the databases on-premise, using a system database name other than DYNAMICS. Once this is done, you will need to migrate the databases to the SQL Azure as GP Utilities cannot create them. The 'sa' account does not work SQL Azure, so this would be a major issue to sort out. Finally, Dynamics GP company databases (and the application) make several calls out to the system database. As of today, you cannot run a query against another database unless you create an Elastic Pool - this is something not supported by Dynamics GP, because, well, Dynamics GP does not support Azure SQL.
So, installing SQL Server onto an Azure VM where you can use an ODBC connection to connect to GP is going to be the ONLY supported environment.