Actually that's all the logs show when sending to a non-existent address
that resides on the same physical server, but I got it figured it.
Believe it or not, it was actually my AVG antivirus. It turns out that
when scanning outgoing mail, by default AVG will use its own "Auto SMTP
server". For some reason it was preventing my client from receiving the
errors. When disabling this "auto smtp server", the popups regarding
invalid user is received properly by Thunderbird and Windows Mail.
Go figure.
