The refusal by an ISP to accept a bounce message (one with an empty envelope sender) is increasingly rare these days, but occasionally we do see it.
This is always a bad idea:
H=mx01.csx1.net [38.103.192.105] … SMTP error from remote mail server after pipelined DATA: 550 Empty envelope senders not allowed
The sender of the message (their client remember) will never find out that the email has not been delivered. In this case the mail was being forwarded, so it's impossible for us to do any better than accept the mail and then test the recipient address by trying a delivery. We had to delete the bounce message — there was nowhere to send it.
Bounce messages are sent with an empty envelope sender to eliminate mail loops. For more information see: RFC 5321.
Did I mention that we would never contemplate such a foolish policy?