Exchange 2007 NDR - Weird Issue with failing emails

User is trying to send email from local account to gmail account using outlook 2003 and for some reason the server thinks that this email is local and is failing.  I have tried everything I can think of including switching on and off cached exchange mode with same issue.  Error info as follows

email is being sent to  and exchange thinks it is a local user

Delivery has failed to these recipients or distribution lists:
The recipient's e-mail address was not found in the recipient's e-mail system. Microsoft Exchange will not try to redeliver this message for you. Please check the e-mail address and try resending this message, or provide the following diagnostic text to your system administrator.
Sent by Microsoft Exchange Server 2007

Diagnostic information for administrators:
Generating server: srv1.nt1.local
#550 5.1.1 RESOLVER.ADR.ExRecipNotFound; not found ##
Original message headers:
Received: from srv1.nt1.local ([fe80::55b9:4f0d:f28f:502f]) by
 srv1.nt1.local ([fe80::55b9:4f0d:f28f:502f%10]) with mapi; Thu, 15 Mar
 2012 16:18:31 -0400
Content-Type: application/ms-tnef; name="winmail.dat"
Content-Transfer-Encoding: binary
From: Barbara Wilhite <>
To: Bob Bratcher
Date: Thu, 15 Mar 2012 16:18:04 -0400
Subject: FW: Important info
Thread-Topic: Important info
Thread-Index: Ac0C6KjT65JxL6EzQ7S5rVN3SG+wIAAAAvBw
Message-ID: <6C883F87DF612643B804809C79EA50194A7E146993@srv1.nt1.local>
Accept-Language: en-US
Content-Language: en-US
X-MS-TNEF-Correlator: <6C883F87DF612643B804809C79EA50194A7E146993@srv1.nt1.local>
MIME-Version: 1.0
X-KSE-Antivirus-Interceptor-Info: scan successful
X-KSE-Antivirus-Info: Clean
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David_BlumbergConnect With a Mentor Author Commented:
Here was the solution that worked:

1- Delete current mailboxs and create users accounts and reconnect them .

2- Outlook maintains a “nickname” list that is used by both the automatic name checking and the AutoCompletion features. The nickname list is automatically compiled as you address email messages. If the nickname cache becomes corrupt, Outlook may not be able to identify recipients, may offer incorrect recipients, may send to an incorrect or old email address, or may send the message to the wrong person.

If you are having problems with a single recipient, you can easily delete the one cached entry as shown in the following section, “Delete a single cached entry”. Otherwise, proceed to the section titled “To delete your Nickname Cache file” further below.

To delete a single cached entry
Open Outlook
Open a new message window; go to the File menu and choose New – Mail Message.
Type one or more letters of the recipient name or address; this will show memorized (cached) entries in a drop-down list. Use the arrow keys on your keyboard to select the entry to be deleted. With the entry highlighted, press the DEL or DELETE key or your keyboard.
This removes the entry from your autocompletion cache.

To delete your Nickname Cache file.
Use the following steps that are appropriate for your version of Microsoft Windows to reset the Outlook nickname cache. After you restart Outlook, Outlook generates a new nickname cache.

Microsoft Windows XP

Exit Outlook.
Start Microsoft Windows Explorer.
On the Tools menu, click Folder Options, and then click the View tab.
Under Advanced Settings, select the Show hidden files and folders check box.
Click OK.
Click Start, point to Search, and then click All files or folders.
In the Search Companion box, type *.NK2 in the All or part of the file name box.
In the Look in box, select your local hard disk drive.
Click Search.
Right-click the .NK2 file with the name of the profile that you want to reset, and then click Rename.
Rename the file to profile name.bak, and then press ENTER.
Exit Windows Explorer.
Restart Outlook.
Microsoft Windows Vista
Exit Outlook
Click the Start Menu
Click Search
Click Advanced Search
Check the box for ‘Include non-indexed, hidden, and system files (might be slow)
Search for *.NK2 in the ‘Name’ field
Is this happening for all of your users, or just one (or a handful?)..  Also, it is ANY external address, or just a couple?

My first thought is that you configured an outbound SMTP connector with a smarthost and accidentally pointed it back in to your own Exchange infrastructure..

David_BlumbergAuthor Commented:
Happening for one user going to Just one external address and the outbound smtp connector has following settings:

Use Domain Name settings ("MX") to route mail automatically
Use external DNS lookup settings on the transport server
David_BlumbergAuthor Commented:
Talked to microsoft support
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