We have recently worked with multiple customers that were experiencing 550 5.4.1 Recipient address rejected: Access denied NDR’s (Non-delivery reports) when sending to mail-enabled public folders hosted in Office 365.
Furthermore, we have noticed that Microsoft has been enabling Directory Based Edge Blocking (DBEB) by default in some tenants. If you are using mail-enabled Public Folders with DBEB enabled will result in the 550 NDR being returned to the sender.
We have also experienced that customers must open a support case with Microsoft in order to disable this feature and allow mail traffic to Office 365 hosted mail-enabled Public Folders.
NoteDBEB, when enabled, is an Office 365 feature that validates incoming mail against Azure AD objects first. Mail-Enabled Public Folders are never synchronized to Azure AD and can cause incoming mail for them to be denied because no object exists in Azure AD.
The article below, although not written very clearly, does provide some addition detail on DBEB.
Read the article here.