Dovecot user lookup fails when using username@domain format
Solution 1:
Userids in dovecot using passdb don't include the domain. The userid the user should use is the local part, not the full email address.
The checks that are passing and failing are working as expected. Setting auth_username_format=%n before the password db definition does work. The domain is not validated though.
Solution 2:
I am using Ubuntu Server 12.04 and I tried the above solutions. However, I found that simplest and easiest way was in 10-auth.conf to set
auth_username_format = %n
I use PAM for the authentication which is the default in Ubuntu 12.04.