In Outlook 2007, I have distrubtion list (call it list A), that contains
individuals email address and another distribution list (call it list B).

When I try and send an email with List A in the TO: field, the individual
emails in list A are sent but list B is returned as undeliverable.

This was not a problem in Outlook 2003.

Here is the actual message in the "Undeliverable email", EngCtrl is list B:

The following recipient(s) cannot be reached:
'EngCtrl' on 3/27/2007 9:00 AM
None of your e-mail accounts could send to this recipient.