SOLVED: Warning: mail() [function.mail]: SMTP server response: 550 Requested action not taken: mailbox unavailable or not local in

The Problem: You send an email to someone and get the following back:
Warning: mail() [function.mail]: SMTP server response: 550 Requested action not taken: mailbox unavailable or not local in

The Cause: Both sender and recipient are on the same mail server, but the recipient’s mail server is hosted by Google Apps (or some other mail server). Your smtp server makes a preliminary request to the wrong server, and causes this false error message.

The Solution: The recipient (who has the mail server hosted by Google Apps) needs to disable mail services for their domain. You can do it in IIS directly (assuming you are running Windows). In Plesk simply go to Domains > Mail > Disable Mail