There are two common causes for this error. One is that you have specified an email in the From field that is different than the user you are logged in as. So, for example, if you have an exchange account set as the main email address for a profile, but you type a different email address in the From field instead of choosing the address from the list of Accounts on the profile, you will get this error.
The other leading cause of this error is a cached address in your autocomplete / nk2 file. This occurs when you have just migrated to our hosted exchange from a previous exchange server, or you have moved from exg3 to exg4 or vice-versa. The file that holds your cached autocomplete addresses will retain the linkages to the old exchange server, and try to use them when you allow the address to autocomplete. Rename or remove the nk2 file (The default location in XP is drive:\Documents and Settings\<user>\Application Data\Microsoft\Outlook) to fix this.