Microsoft has information regarding that error along with fixes.

 

http://support.microsoft.com/kb/2483175

 

One other solution I found is:

 

Goto Tools,
Then Goto Account settings,
Select E-mail Tab,
Select your account,
Then click on Repair,
Click Next,
In Internet E-mail Settings,
Select More Settings,
In Outgoing Server tab deselect all the check boxes or provide correct user name and password.
Then click OK,
Then click Next,
Finally click Finish.

 

Thanks for your reply John.  Already tried that.  I later found that in SmarterMail while going through some settings earlier I had inadvertantly checked the box "Disable AUTH LOGIN method for SMTP authentication" on the SMTP_IN protocol settings.  Unchecking this seems to have fixed that error.