Note to SmarterTools -- Philip's question comes up often. See: http://portal.smartertools.com/community/a87009/still-able-to-send-emails-unauthenticated-even-when-require-smtp-authentication-is.aspx
The setting that Joe pointed him to is hard to find, difficult to understand, and should be eliminated.
Instead, this existing check box at the domain level should require SMTP Auth for all users. Period.
Eliminating the local deliveries check box will make SM easier to set up and more hardened against spammers.