We present Herschel and XMM-Newton observations of ULASJ1234+0907 ($z=2.503$), the reddest broad-line Type 1 quasar currently known with (i-K)>7.1. Herschel observations indicate that the quasar host is a hyperluminous infrared galaxy (HyLIRG) with a total infrared luminosity of log10(LIR/L0)=13.90+/-0.02. A greybody fit gives a dust temperature of Td=60+/-3K assuming an emissivity index of beta=1.5, considerably higher than in submillimeter bright galaxies observed at similar redshifts. The star formation rate is estimated to be >2000M0/yr even accounting for a significant contribution from an AGN component to the total infrared luminosity or requiring that only the far infra-red luminosity is powered by a starburst. XMM-Newton observations constrain the hard X-ray luminosity to be L(2-10keV)=1.3e45 erg/s putting ULASJ1234+0907 among the brightest X-ray quasars known. Through very deep optical and near infra-red imaging of the field at sub-arcsecond seeing, we demonstrate that despite its extreme luminosity, it is highly unlikely that ULASJ1234+0907 is being lensed. We measure a neutral hydrogen column density of NH=9e21/cm^2 corresponding to AV~6 mags. The observed properties of ULASJ1234+0907 - high luminosity and Eddington ratio, broad lines, moderate column densities and significant infra-red emission from re-processed dust - are similar to those predicted by galaxy formation simulations for the AGN blowout phase. The high Eddington ratio combined with the presence of significant amounts of dust in this quasar, is expected to drive strong outflows due to the effects of radiation pressure on dust. We conclude that ULASJ1234+0907 is a prototype galaxy caught at the peak epoch of galaxy formation, which is transitioning from a starburst to optical quasar via a dusty quasar phase.