550 Requested action not taken: mailbox unavailable or not local

Yep, Windows Live can be a pain. Check:

• You're not on a blacklist
• Your server has MX and reverse DNS records
• You have SPF DNS records (many servers reject mail without a valid SPF, GMail for example, here's an explanation and a wizard)
• Your mailserver's HELO response matches your hostname
• Your mailserver is not an open relay
• Your DNS records' TTL is not too low - 86400 (24 hours) is recommended (some spammers set their TTL very low to regularly update forged DNS records)

In this case, you should be able to use either From or Reply-to. It may be best put the client's address in Reply-to and use a no-reply address for your domain in the From header. If your web-server is not trusted by your email server, this may be required.

If you were allowing the client to send a message, as some sites do, put the client's address in Reply-to and use a no-reply address for your domain in the From header.

It is possible to use an address different from that in the From header as the envelope sender. This should be listed in a Sender header. However, I don't recommend it for this case. It is more applicable to personal business mail where someone is sending on behalf of someone else (and where the sender and from addresses are in the same domain).

There are cases which can cause problems if you put the client's email address in the From address.

• The client's domain may have an SPF record which does not allow you to send email for their domain;
• The clients' domain may specify all email from that domain is DKIM signed (currently not very likely to cause problems); and
• If the email is sent to the client, the client;s domain may not accept mail sent with address in its domain(s) from untrusted (Internet) servers.

On my server the first and last cases apply. I am working on DKIM, but many DKIM signers don't publish their policy. All three rules are very effective against SPAM. Unfortunatly, automated systems (including web servers) are often configured poorly and their email gets blocked or assigned to the spam folder.