Here is some deeper info:
The External IP it is coming from is not in the whitelist or ByPass SMTP as it is a brand new Azure IP.
The logs we see for SMTP shows that the email fails authentication yet it still sends to any domain in our local server. If you try to send outside the server (gmail) then it fails since it can not find a "local" user for gmail.
We used a fake email address "blahblah@relayme.com" and the below log shows that it sent the email to an internal domain.
If it was on the whitelist/bypass, then would it not then let me send to GMail? This is basically telling me that if you use the server to relay, even with a bad password, you can still send to internal domains, just not external.
[2014.12.15] 16:18:24 [191.238.34.22][39077737] connected at 12/15/2014 4:18:24 PM
[2014.12.15] 16:18:24 [191.238.34.22][39077737] cmd: EHLO EMAT-WEB1
[2014.12.15] 16:18:24 [191.238.34.22][39077737] rsp: 250 MySMxServer.com Hello [191.238.34.22]250-SIZE 52428800250-AUTH LOGIN CRAM-MD5250-STARTTLS250 OK
[2014.12.15] 16:18:24 [191.238.34.22][39077737] cmd: STARTTLS
[2014.12.15] 16:18:24 [191.238.34.22][39077737] rsp: 220 Start TLS negotiation
[2014.12.15] 16:18:24 [191.238.34.22][39077737] cmd: EHLO EMAT-WEB1
[2014.12.15] 16:18:24 [191.238.34.22][39077737] rsp: 250-My SM Server Hello [191.238.34.22]250-SIZE 52428800250-AUTH LOGIN CRAM-MD5250 OK
[2014.12.15] 16:18:24 [191.238.34.22][39077737] cmd: AUTH login QmxhaEJsYWhAcmVsYXltZS5jb20=
[2014.12.15] 16:18:24 [191.238.34.22][39077737] Authenticating as BlahBlah@relayme.com
[2014.12.15] 16:18:24 [191.238.34.22][39077737] rsp: 334 UGFzc3dvcmQ6
[2014.12.15] 16:18:24 [191.238.34.22][39077737] rsp: 535 Authentication failed
[2014.12.15] 16:18:24 [191.238.34.22][39077737] cmd: MAIL FROM:<BlahBlah@relayme.com>
[2014.12.15] 16:18:24 [191.238.34.22][39077737] rsp: 250 OK <blahblah@relayme.com> Sender ok
[2014.12.15] 16:18:24 [191.238.34.22][39077737] cmd: RCPT TO:<MyEMailXX@gmail.com>
[2014.12.15] 16:18:24 [191.238.34.22][39077737] rsp: 550 <MyEmailXX@gmail.com> No such user here
[2014.12.15] 16:18:24 [191.238.34.22][39077737] cmd: RCPT TO:<Wmail@OnMyServer.com>
[2014.12.15] 16:18:24 [191.238.34.22][39077737] rsp: 250 OK <Email@OnMyServer.com> Recipient ok
[2014.12.15] 16:18:24 [191.238.34.22][39077737] cmd: DATA
[2014.12.15] 16:18:29 [191.238.34.22][39077737] rsp: 354 Start mail input; end with <CRLF>.<CRLF>
[2014.12.15] 16:18:29 [191.238.34.22][39077737] rsp: 250 OK
[2014.12.15] 16:18:29 [191.238.34.22][39077737] Data transfer succeeded, writing mail to 317437282817.eml
My settings you posted in the picture above are exactly the same and we have restarted the SM service to be sure.