Hmm interesting, I just did a quick telnet to our SM 16 test server and I got back the correct value. After checking the code we do dynamically write that variable based on MaxMessageSize if it's greater than 0. Can you verify what the value is for that setting in your SMTP settings?

Yes, our value is set to 51200.

See screenshots.

Ah, ignore :), it appears the value is in MB, not KB. I changed to 50 and it reports the correct value.