There are some Possible Causes:
General access denied, sender access denied – the sender of the message does not have the privileges required to complete delivery.
You are trying to relay your mail through another SMTP server and it does not permit you to relay. (Setup SMTP Authentication in your email client – See below)
The recipient might have mailbox delivery restrictions enabled. For example, a recipient’s mailbox delivery restriction was set to receive from a Distribution List only and non-members’ email will be rejected with this error.
For Exchange Server 2003, a distribution list can be configured to restrict mail delivery from unauthenticated users. Mail that is sent by using an unauthenticated SMTP session are rejected.
Check system privileges and attributes for the contact and retry the message. Also, make sure you are running Exchange 2000 Service Pack 1 or later for other potential known issues.
Check out one of our Knowledge Base Articles on SMTP Authentication and POP mail settings:
Configuring Outlook 2002 (XP)
Configuring Outlook 2000
Configuring Outlook Express