Question : When using smarthost for outgoing SMTP, how are error messages routed?

Here's the scenario...

You send an email to someone with an incorrect address.  Your local server sends this email through a smarthost.   The smarthost is unable to deliver the message and now needs to get an error message back to you.

Does it do an mx lookup on the sender's address?  Or does it send a message directly back to the sending server?

I assume it is the former because the incoming email may be going through a filtering system (e.g. Postini or ExchangeDefender), and the SMTP connections on the local server restricted to the filtering system's IP.

But can someone confirm for me?

Answer : When using smarthost for outgoing SMTP, how are error messages routed?

That depends on many things:
1. The domain is correct but the user does not exist: In this case the action depends on the setting Recipient Filtering (called so on Exchange at least). If recipient filtering is on then the receiving mail server directly replies on the SMTP level and informs the sending SMTP server that the user does not exist. Then the SENDING server creates an NDR, as opposed to, when recipient filtering is off, the NDR is created and sent by the receiving mail server.
2. The domain does not exist: In this case you will get a reply from the mail server about this almost immediately.
3. The domain exist but there's no MX pointers: In this case the sending mail server will retry many times in the course of like two days, assuming the mail server is down. In about half the time you will get a warning message that the message is still retried.

Read more here:
http://www.smartertools.com/forums/p/25361/68809.aspx