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How does Exchange 2003 in SBS2003 R2 treat incoming email to invalid addresses at my domain?

The reason for my question is I have just set up MailHop Backup MX at www.dyndns.com to be a backup server to my own SBS2003 Exchange server.
In their FAQ's they make the following point;

Soft rejecting or accepting invalid addresses
When a message comes in for an invalid address at your domain, there are three things you server might do. It might

accept the message (and either deliver it to a default mailbox or send it to /dev/null)
reject the message with a soft/temporary error (4xx error code)
reject the message with a hard/permanent error code (5xx error code)
Either of the first two behaviors can cause significant problems. If you accept all such messages your server can become overloaded with junk mail sent as part of a directory harvesting attack. While this won't have an overly significant impact on your Backup MX, it prevents us from limiting the amount of junk mail sent through our system based on address verification.

The second behavior however can have much more drastic consequences. If you server is configured to issue a soft/temporary rejecting on messages addresses to invalid addresses, this will result in our system accepting messages for your domain and queueing them for delivery. We'll then end up queueing these invalid messages for up-to 10 days before we eventually bounce them. This can affect our ability to deliver valid email to your domain as we well as decrease the performance of the service for all customers.

For these reasons, we ask that you configure your server to follow the third path, reject all mail at receipt time with a 5xx level error message. This will allow our servers to reject those messages immediately and will help ensure the best overall performance for your domain.

My question is; I'm fairly sure I'm not the first, but am I set up as the second or the third?

1 Solution
If you have recipient filtering turned on then Exchange sends back this:

550 5.1.1 User unknown

If you don't have recipient filtering turned on, then the messages are accepted and bounced immediately. This is bad practise and will get you blacklisted.

MPSmith4258Author Commented:
Thanks Simon, all understood
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