The user is not being authenticated, but SmarterMail is set to authenticate users that try to use your server as a relay. That setting is found under Settings > Protocols > SMTP In. "Allow Relay for authenticated users" being enabled will required this. Especially if Allow Relay is set to Nobody. The source server just needs to authenticate with the account it is using to be allowed through.
Jereming Chen
System/Network Administrator
SmarterTools Inc.
www.smartertools.com