That's not quite true, it depends on your definition of 'free'.
Out of the box, Exchange 5.5 NDRs cannot be turned off (notifications to the nominated admin mailbox can be turned off, but that doesn't affect the fact that an NDR is still generated).
So some sort of external product, between your Exchange server and the Internet, is required, to intercept the NDRs and bin them instead of sending them out. A server running SendMail (which has no cost to buy) could do this, but you will have to set it up and configure it (that's the cost, but it's in terms of hardware, time and effort, not currency).
XWall is a good solution if you want to spend the money, because it can do white list filtering - this checks the messages inbound, and if the message is to a nonexistant address, instead of sending it to Exchange for Exchange to send back a NDR which is then binned, it simply bins the inbound message. More efficient, although it does need to keep the white list of your valid smtp addresses up to date.
Other SMTP scanning engines can also do white list filtering, MailSweeper is one such product. It might even be possible to configure SendMail to do it, but I have no experience of that myself.
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