this also applies to emails sent to hotmail and gmail accounts

the error that appears on the workspace list is "Mailbox unavailable. The server response was: 5.7.1 Unable to relay for (email address)"

please note that for a certain email address it works fine.

The error "Mailbox unavailable. The server response was: 5.1.1 User unknown" when sending email to an email group

This typically means that the domain being sent to cannot be contacted or the mailbox doesn't exist (as the message states). But I'm guessing that you've entered valid addresses,  so that should not be an issue. 

I would try to send mail directly from a Windows test app first, to ensure the SMTP server your K2 Server uses functions properly and then check permissions on relevant Exchange machines used for relaying, etc. The Logs on the SMTP Server itself should also give you more info on why this fails.

Here's a link that has a lot of info on web mail troubleshooting:

http://www.systemwebmail.com/