Surely its a Name resolution problem, what I did is to follow KB ID 823158.
Here are the steps..
1. Start Exchange System Manager, expand Recipients, and then click Recipient Policies.
2. Right-click Default Policy, and then click Properties.
3. Click the E-Mail Addresses tab.
4. In the Generation rules dialog box, click SMTP, and then click Edit.
5. At the bottom of the SMTP Address Properties dialog box, if the This Exchange Organization is responsible for all mail delivery to this address check box is selected, this Exchange organization is authoritative for that address space. If this check box is not selected, this Exchange organization is not authoritative for that address space.
When either Exchange 2000 Server or Exchange Server 2003 tries to deliver a message to a local address space (an address space that exists on a recipient policy), it tries to find the destination address in the Microsoft Active Directory directory service. If Exchange cannot find the destination address in Active Directory, the following occurs:ò If the Exchange organization is not authoritative, Exchange Server checks connectors and the Domain Name System (DNS) to find another route to that address space. If Exchange finds a connector with a matching address space, the message is routed to that connector. If Exchange does not find a connector, Exchange checks the DNS for a mail exchange (MX) record and routes the message to the corresponding host. If neither method is able to locate another route for the message, a non-delivery report (NDR) is generated with error code 5.4.0. This error code indicates that there is a name resolution issue.
ò If the Exchange organization is authoritative, Exchange Server immediately generates an NDR with error code 5.1.1. This error code indicates that the destination address does not exist. You can modify this behavior by specifying the fully qualified domain name (FQDN) or the IP address of the host where you want unresolved mail to be forwarded. To locate this setting, follow these steps:1. Click Start, point to Programs, point to Microsoft Exchange, and then click System Manager.
2. If the Display administrative groups option is turned on, expand Administrative Groups, and then expand First Administrative Group (where First Administrative Group is the name of your administrative group).
Note To display administrative groups, right-click Your_Organization, click Properties, click to select the Display administrative groups check box, click OK two times, and then restart Exchange System Manager.
3. Expand Servers, expand Your_Exchange_Server, expand Protocols, and then expand SMTP.
4. Right-click SMTP virtual server, and then click Properties.
5. Click the Messages tab.
6. In the Forward all messages with unresolved recipients to host box, type either a FQDN or the IP address of the host that you want to forward all unresolved messages to authoritative domains.
Notes ò When you type the FQDN or the IP address, enclose it in square brackets ().
ò An NDR is not generated if messages are forwarded to this host. This setting does not affect domains where Exchange 2000 Server 2000 or Exchange Server 2003 is not authoritative.
Thanks God, I finally make it work after trial and errors on my setting for a week.