This is a Windows Server 2003 SP2 environment with an Exchange Server 2003 SP2 member server. There are about 12 users connected to the LAN using Outlook 2003 and 2007. They can all send and receive email just fine through their Exchange accounts.
One user, Mel, also has a POP/SMTP email address configured in Outlook 2007. Up to a couple weeks ago Mel could send email from this additional account. Then we had a glitch where an Exchange mailbox was deleted after an employee quit but their AD user account still existed, then a non-delivery report was sent to a group that included that user, but their mailbox did not exist, which created another non-delivery report, which was also sent to the group including that user, which created a vicious cycle resulting in ~45,000 non-delivery report emails ending up in the mailboxes of several users, including Mel's.
As a part of the fix for this problem, I disallowed delivery reports and NDR's in the properties of the Default Internet Message Format in Exchange System Manager. I have since deleted both the user and the mailbox that caused the initial problem, and turned back on delivery reports and NDR's.
Anyway, now when Mel tries to reply to or send a new message via the external SMTP server configured in Outlook, she immediately gets an email in her inbox like this:
"Your message did not reach some or all of the intended recipients.
Subject: RE: Order Received!
Sent: 10/28/2008 12:01 PM
The following recipient(s) cannot be reached:
email@example.com on 10/28/2008 12:01 PM
550 sorry, mail to that recipient is not accepted (#5.7.1)"
(I have changed the real email address to firstname.lastname@example.org).
I'm pretty sure this is coming from the Exchange Server, not the SMTP server. I have double-checked all the SMTP server settings and they are all correct. When I test the account settings in Outlook 2007 both tests pass with green checkmarks. I've also tried deleting the POP/SMTP account, restarting Outlook, and recreating the account from scratch. Same problem. I also tried creating a brand new POP/SMTP email account using a different, known good server, that works fine on my computer on a different network.
The MX records and DNS settings for this domain are correctly set up, as is port forwarding to the Exchange server. All outbound connectivity is allowed by the firewall on all ports. Mel could send email just fine via this alternate address before the previously mentioned problem with mass NDRs occurred. In the rush to fix that problem I might have changed some setting that caused this new problem, but I have looked everywhere through my Exchange settings and can't find what that setting might be.