You're welcome dude. Had to do something in between reboots on this nightmare of a new 2003 Server rebuild I've been doing all day long, it was driving me bonkers [

] The stuff that has gone wrong, you just couldn't make up! [

]
First thing to do is find the source of this returned mail, whether it's from your web host's mail server or your Exchange Server. Check the mail header in the returned message, does it give any hint of having passed through an Exchange Server (there should be a trace of the server's host name in there somewhere), if so make sure you have sent your message to a valid user name on Exchange.
I find Outlook Express much easier than Outlook for examining mail headers. Highlight a message, then go to File > Properties then Details tab.