I noticed this behavior under Exchange 2000, and it appears to be problem for me in Exchange 2003 as well. If I check the box for "Hide from Exchange address lists" for any user, that user becomes unable to access his or her e-mail account using Outlook 2003 or OWA. Unchecking the box restores his or her access.
I would assume that this option only hides the user's address from other users. Why would it block account access altogether? What's going on?
I have an urgent need for this answer, so I have assigned this question 400 points.