I just did a domain rename. I am not sure if this is part of the problem or not because I did not use nested aliases until after the rename.

So, nested distribution lists work fine with the web client, but when I try and send something from Outlook 2007, I get this error:

Error: This message could not be sent.
Subject: Test- do not respond
To: contractors@tomsawyer.com

Note: You are trying to send on behalf of a person whose address is not found. Perhaps the GAL has not been downloaded.

Simple distribution lists work as expected with Outlook.

Could this have something to do with the rename since the Outlook client was setup before the domain was renamed from the test to production name.