From within Outlook 2007 your contacts are sorted by FirstName, LastName. At first look it seems like this is the only way you can have it… But, after some digging I came across a method that allows you to reverse it.
If you want to have the contacts sorted by last name instead by using the following method:
1. Open Microsoft Outlook.
2. From the Tools menu, click Account Settings.
3. On the Address Books tab, click Outlook Address Book.
4. Click Change.
5. Under the list of Outlook Address Books, select the one you want to change the sort order for.
6. Click File As (Smith, John).
7. Click Close.
8. Click Close again.
Exit Outlook to have your changes applied. Once you re-open Outlook, you can verify that the sort order has been changed to last name. From the Tools menu, click Options. From the Preferences tab, click the Contact Options button. Verify that Last, First is listed as the Default “File As” order.
[Via LockerGnome]

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Fantastic! Thanks very much. Changing this setting actually resolved my problem synching my iPhone 3G with Outlook 2007. Before it mixed up first name and last name fields. Now all works properly. It’s so simple once you know how to do it. Thanks again!
[...] Display Outlook 2007 contacts by last name. [...]
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Thanks a lot, exactly what I was looking for.