Okay, we've been getting several dozen accounts a day with this problem now. The commonality is that they are all iOS users with a symbol in their password. When using either PASSWORD or MD5 for authentication the following error is logged:
Exception: The input is not a valid Base-64 string as it contains a non-base 64 character, more than two padding characters, or an illegal character among the padding characters.
No matter how many times they delete the account and recreate it or how many times they re-enter their password the problem persists. The only solution thus far has been to have them reset their password to a Simple Password instead of a Complex one which instantly remedies the problem.
So, it would seem that there is something going on in SmarterMail that prevents it from reading the base64 response properly from the iOS client for SMTP when there are symbols contained in the password (IMAP and POP authentication are both fine).