Apologies, I have no idea if this works with Outlook. It will work with Apple's default Address Book.app, but I can't say any more than that.
Currently, a sync on my box adds any new addresses to either Address Book or the iPhone (whichever one was lacking) without duplicates; in like manner, deleting a contact on one will delete it off the other at the next sync. Once it's in Address Book on my computer, it's synced with iCloud. My post was intended to help those who discovered Address Book had all duplicate contacts after syncing with iCloud.
My suggestion is to get contacts correct one facet at a time - your iPhone OR your computer OR iCloud and work up from there. For example, forget iCloud for now and concentrate on your iPhone since you can restore from backup and you already have your contacts like you want them. Backup Outlook's contacts somewhere and delete your Outlook contacts from your computer. Sync contacts with Outlook, going 100% iPhone contacts/0% Outlook contacts. (I'm assuming that's what the iTunes sync does, sync contacts from iPhone to/from Outlook.) Hopefully this will copy your correct contacts from your phone to Outlook without duplicates. If it does, great! We're half way there. If it doesn't, no prob; you made a backup of your Outlook contacts just in case. If everything goes according to plan, you now have correct contancts in both Outlook and iPhone, and the next step is to add iCloud to the mix. That was where my post to steve w came in.
*sigh* That was a long winded explanation for "delete your Outlook contacts and sync with your iPhone," but I hope it helped.