Contacts were synchronized from Domino to Exchange. In this particular instance, the contacts are from groups in Domino that contain a leading hash/pound (#) character. As is, the contact has the correct routing address (@notes.domain.com) to route back to CMN/Domino. It appears the same as all other contacts for users/groups/resources which are working just fine.
If one creates a new mail contact through EMC/EMS with a leading # character in the primary/target address it works fine; meaning one can e-mail it and it routes properly. Send a test e-mail from Outlook any group contact created by DirSync which has a leading # it will never leave Exchange and will receive an immediate NDR saying the address is not found.
One interesting thing worth notiing during testing, if one attempts to modify one of the contacts created by DirSync (for example remove the # from the start of the email address) a warning will appear. Hit yes on the warning, and the contact would be upgraded. After the contact was 'upgraded', even with the leading # in the target address, mail routing from Exchange to Domino works fine.
In versions of Exchange prior to Exchange 2010 the # character is not valid within the SMTP address.
Below is an article that will explain things in greater detail.
http://support.microsoft.com/kb/841091
Basically SMTP has a wide range of characters that it accepts as valid email addresses and these seem to work everywhere accept with Microsoft. Up until Exchange 2007 there were special characters that Microsoft would not accept as legit characters for an email address. Here is an article about all of this on Wikipedia, which is attached below.
http://en.wikipedia.org/wiki/Email_address#Invalid_email_addresses
"This is a known issue with exchange. Groups with external recipients cannot have a leading # character. CMx can be configured to drop the # on sync, but the addresses in the target system will have to modified manually to match."
Basicly Exchange thinks the email addresses it is taking in are old code and it has to upgrade it. This is not the Quest tool with the issue it is Exchange. Currently there is no way to upgrade email addresses on mass as this is done on the Exchange side and not with the Quest tool.