When I was implementing the Failed Message Routing feature in BizTalk Server 2006, I got caught up into the notion that Failed Orchestration Routing may execute the same way as Failed Message Routing. Turned out that they don’t – Failed Message Routing and Failed Orchestration Routing are two different notions. BTS 2006 can only handle Failed Message Routing by enabling the flag “Enable routing for failed messages” on either a Send or a Receive port. If you ever need to handle Failed Orchestration routing, then you will need to implement the exception logic in the orchestraiton and fill in the ErrorReport promoted properties for the Error Report Orchestration to subscribe the Failed Message from an Orchestration.

Here is a good blog by Matt Meleski around this notion: http://objectsharp.com/cs/blogs/matt/archive/2006/11/01/4110.aspx