I am having great trouble getting any SMTP settings to work with my server without a "504 - Invalid Username or Password" error.  No question about it...  I am entering a valid email/password into the host...smtp settings.  The admin email account of the portal in question is also a valid email on my mail server.  Here is the real catch...   the portal successfully sends email successfully, but I see this error message in my Mail Enable SMTP logs...  nevermind the ntlm authentication, it gives the exact same error with basic authentication method.  Any help would be appreciated.  For this test I used the bulk emailer... both the sending and receiving email are valid email accounts on my mail server which is also the same server where the DNN sites are hosted.

08/24/10 16:31:39 SMTP-IN 53985B250C6E4E6A942C6F854103B3FB.MAI 1420 [MY MAIL SERVER IP] 220 [MYDOMAIN.com] ESMTP MailEnable Service, Version: 4.25--4.25 ready at 08/24/10 16:31:39 0 0 
08/24/10 16:31:39 SMTP-IN 53985B250C6E4E6A942C6F854103B3FB.MAI 1420 [MY MAIL SERVER IP] EHLO EHLO WEB-T4YSZWRHZZZ 250-[MYDOMAIN.com] [64.27.51.94], this server offers 4 extensions 146 22 
08/24/10 16:31:39 SMTP-IN 53985B250C6E4E6A942C6F854103B3FB.MAI 1420 [MY MAIL SERVER IP] AUTH AUTH ntlm TlRMTVNTUAABAAAAB4IIogAAAAAAAAAAAAAAAAAAAAAGAHIXAAAADw== 504 Invalid Username or Password 264 68 
08/24/10 16:31:39 SMTP-IN 53985B250C6E4E6A942C6F854103B3FB.MAI 1420 [MY MAIL SERVER IP] MAIL MAIL FROM:<SUPPORT@MYDOMAIN.com> 250 Requested mail action okay, completed 43 40 
08/24/10 16:31:39 SMTP-IN 53985B250C6E4E6A942C6F854103B3FB.MAI 1420 [MY MAIL SERVER IP] RCPT RCPT TO:<SUPPORT@[USERDOMAIN.com> 250 Requested mail action okay, completed 43 35 
08/24/10 16:31:39 SMTP-IN 53985B250C6E4E6A942C6F854103B3FB.MAI 1420 [MY MAIL SERVER IP] DATA DATA 354 Start mail input; end with <CRLF>.<CRLF> 46 6 
08/24/10 16:31:39 SMTP-IN B0AFCE43B6AF4DC38A79C12B2EE41410.MAI 1420 [MY MAIL SERVER IP] MAIL MAIL FROM:<SUPPORT@MYDOMAIN.com> 250 Requested mail action okay, completed 43 40 =?utf-8?B?dGVzdGluZyBHYXJ5J3MgZW1haWw=?=
08/24/10 16:31:39 SMTP-IN B0AFCE43B6AF4DC38A79C12B2EE41410.MAI 1420 [MY MAIL SERVER IP] RCPT RCPT TO:<SUPPORT@[MYDOMAIN.com> 250 Requested mail action okay, completed 43 38 =?utf-8?B?dGVzdGluZyBHYXJ5J3MgZW1haWw=?=
08/24/10 16:31:39 SMTP-IN B0AFCE43B6AF4DC38A79C12B2EE41410.MAI 1420 [MY MAIL SERVER IP] DATA DATA 354 Start mail input; end with <CRLF>.<CRLF> 46 6 =?utf-8?B?dGVzdGluZyBHYXJ5J3MgZW1haWw=?=

The sender email definitely matches a valid account on my server.  I was careful to watch the sending IP address of the DNN portal and setup my MailEnable service to accept all relaying from that local IP.  I notice that all my portals have this same issue, no matter what email accounts I put into the smtp configuration. 

Ok, two days and counting...  can someone explain why this ended up being the fix?

I used 127.0.0.1 
instead of mail.mydomain.com


special callout to:
http://www.orizonti.com/Support/Forums/tabid/785/forumid/9/postid/1476/view/topic/Default.aspx