I have a fully functioning GW2014 Environment that I am integrating Exchange into.
We only need SMTP Mail to send between the systems and I have a shared domain (fakeschool.edu.au).

No user exists in both systems, and only test users exist in Exchange at this point.

Currently I have:
GW2014 Inbound via gateway firewall/proxy that is the internet visible SMTP server - Relay Host for outbound messages: is configured
GW2014 Outbound via gateway firewall/proxy - blocks outbound 25 and 53 etc
GW2014 to Exchange 2013 mail flow both ways
Exchange Outbound via gateway firewall/proxy
Exchange inbound via GW2014 via gateway firewall/proxy fails

After some investigation it appears that I need to set Forward Undeliverable Inbound Messages to Host: to [Ex.ch.ang.eIP]

However when I configure, press save, restart service I see (sample, happens to ALL domains).

13:21:10 60C4 MSG 619958 Sender: me@fakeschool.edu.au
13:21:10 60C4 MSG 619958 Building message: s559e746.531
13:21:10 60C4 MSG 619958 Recipient: mehome@netspace.net.au
13:21:20 5384 MSG 619958 Analyzing result file: \\SRV-GW01\GRPWISE\DOMAIN\wpgate\gwia\result\r559e746.53 1
13:21:20 5384 MSG 619958 Detected error on SMTP command
13:21:20 5384 MSG 619958 Command: netspace.net.au
13:21:20 5384 MSG 619958 Response: 450 Host down (netspace.net.au)

When I clear that setting and restart service, everything works.

So my questions:

1: Why - what am I missing?
2: How do I make this work?