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I ran into this error when attempting to send local e-mail from my postfix box which sits on the same network as my Microsoft Exchange 2003 server.
554 5.1.0 Sender Denied (in reply to end of DATA command)

The solution to this problem is to disable sender/recipient filtering in Microsoft Exchange.

1. Open Exchange System Manager.
2. Right Click on Message Delivery and select Properties.
3. Browse to the Recipient Filter tab and uncheck Filter recipients who are not in the directory.

Within Exchange System Manager, expand the following:
Servers > "Your Server" > Protocols > SMTP

Right click on Default SMTP Virtual Server and select Properties. Click Advanced within the General tab and then click on (All Unassigned).
Uncheck both Apply Sender Filter and Apply Recipient Filter.

Restart the SMTP service from the command line:
net stop "Simple Mail Transfer Protocol (SMTP)"
net start "Simple Mail Transfer Protocol (SMTP)"

This solution was derived from this website.

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