This article explains the working of recipient limit feature in both exchange 2003 and 2007 server versions. Many people will have a questions on how the distribution list recipient is counted ?, in fact there is change in the working of recipient limits in exchange 2007 compared to the older exchange 2003 version.
In Exchange 2003:
In processing of email message, the recipient limits are applied after the expansion of the recipients. The expansion is nothing but the designated expansion server will expand all group lists, it will have the individual and non-duplicated recipient entries. So, if a user is having a recipient cap set to 50, when a user try to send a mail to a distribution list of 60 members, the result only the first 50 users of the expanded list will receive the mail, for the rest it will through the respective NDR.
In Exchange 2007:
But, in exchange 2007, the recipient limits are applied in the hub transport server role before the expansion of the recipient limits. In simpler words, expanded DL members are not counted in turn it will be counted as a single recipient. So, if a user is having a recipient cap set to 50, when a user try to send a mail to a distribution list of 60 members, the result all the users will be able to receive the mails henceforth it just count DL as a single recipient.
Hope the above is informative