One of my customers runs Exchange Server 2003 in an environment that has multiple administrative groups. All the organization's mailboxes use @abc.global.com as their primary email address, and some mailboxes have an additional local SMTP address. I created a recipient policy named Inbound SMTP domains in the Recipients container. In this policy I registered the SMTP address @abc.local.com and selected This Exchange Organization is responsible for all mail delivery to this address. With this setting enabled, all email messages sent to @abc.local.com are delivered to an Exchange server in the Exchange organization if the recipients exist. If a recipient doesn't exist in the Exchange organization, the Exchange server replies to the sender with a nondelivery report (NDR).
One of the local Exchange administrators removed the SMTP address @abc.local.com from a user's mailbox. The administrator reported that the Exchange server didn't send an NDR to either an internal or Internet sender in the same administrative group who sent an email to the removed email address. However, when an internal user from another administrative group sent a message to the removed email address, that sender received an NDR. I concluded that the problem must be confined to the particular administrator group.
Upon further investigation, I noticed that the message sent to the removed email address bounced between the Exchange server and the mail relay (i.e., smart host). I found that the Exchange server's Default SMTP Virtual Server setting had the Forward all mail with unresolved recipients to host: mailrelay.local.com option enabled. This setting seemed to have overwritten the recipient policy I created. After I disabled the Forward all mail with unresolved recipients to host setting, the problem was solved.