The Internet is a complex structure arising from the interconnection of numerous autonomous systems (AS), each exercising its own administrative policies to reflect the commercial agreements behind the interconnection. However, routing in service overlay networks is quite capable of violating these policies to its advantage. To prevent these violations, we see an impending drive in the current Internet to detect and filter overlay traffic. In this paper, we first present results from a case study overlay network, constructed on top of Planetlab, that helps us gain insights into the frequency and characteristics of the different inter-domain policy violations. We further investigate the impact of two types of overlay traffic filtering that aim to prevent these routing policy violations: blind filtering and policy-aware filtering. We show that such filtering can be detrimental to the performance of overlay routing. We next consider two approaches that allow the overlay network to realize the full advantage of overlay routing in this context. In the first approach, overlay nodes are added so that good overlay paths do not represent inter-domain policy violations. In the second approach, the overlay acquires transit permits from certain ASes that allow certain policy violations to occur. We develop a single cost-sharing framework that allows the incorporation of both approaches into a single strategy. We formulate and solve an optimization problem that aims to determine how the overlay network should allocate a given budget between paying for additional overlay nodes and paying for transit permits to ASes.