This problem, is not related to internal vs external emails, it’s a security ‘feature’ in newer versions of Windows server. Email aliases are not resolved to email addresses in that newer version because it’s deemed a security hole.
When users with browser access create subscriptions, and the RSReportServer configuration file is unmodified, the TO field is populated with their domain username. The field is also greyed out so they can’t edit it. If the SMTP or email server being used is on windows 2003 then there’s no issue, it resolves the email address from the alias and sends the subscription email successfully. In windows 2008 and above, it doesn’t.
The solution is to edit that RSReportServer configuration file, setting SendEmailToUserAlias to False. That stops the TO field from being auto-populated, and also ungreys that field. The user is then free to enter their full email address, no address-resolving required by the SMTP server.
If you move your email server from 2003 to 2008 then you need to firstly edit all the subscriptions so that the TO/ CC / BCC fields contain full email address, secondly edit that config file and then lastly use the reporting services configuration tool to change the email server address.
If you don’t do the first two steps, everyone’s subscriptions stop working! Fun.
See the “configuration options for setting the to: field in a message”:
http://msdn.microsoft.com/en-us/library/ms159155.aspx