Problems with nested DL in Outlook 2003 (e2k env)

[Cameron]

We have 2 users who share their contacts folder between them. Lets call them
User1 and User2.

User 1 creates a new distribution list called "US". Creates another
distribution list called "western region". Then creates contact called "Bob
Smith, VP". Then he puts the contact "Bob Smith, VP" in the DL "western
region". Then the DL "western region" is added to the DL "US".

So we have a DL called "US" which has another DL inside it called "western
region". The DL "western region" contains a contact called "Bob Smith, VP"

Still with me? Good =).

So User1 has this DL called "US" in his contacts folder. User2 has access to
User 1's contact folder and copies this DL called "US" to his own contacts
folder.
So now, User1 and User2 have an identical DL called "US" in their respective
contact folders.

So here is the actual problem.

When User2 tries to send an email to the DL called "US", he gets an NDR. The
reason we figured out is this.

When we enter "US" in the To: field, it shows up as Bold and expandable (as
a DL should). Once we expand it, instead of finding anoter Bold and
expandable DL, i find an entry called "western region". once i double click
on that, it shows up like a smtp contact.

name: Western Region
Email address: UNKNOWN
Email Type: UNKNOWN.

This only happens on User2. User1 is able to send to the DL without any
problems.

My questions is, is this working the way its supposed to or is there a
problem with nested DL in Outlook?