How to configure basic authentication in IIS SMTP Server?

I feel like this is a stupid question but:

I have a test environment set up where I need to enable SMTP basic authentication with IIS. I have a Win2k3 r2 server as a DC in its own windows domain called testdom.local. I also have the MS pop3 server set up with the testdom.local domain on that server. I have a windows account called "simon" on that domain and a mail box set up on the pop3 service.

With anonymous access set up on the IIS smtp server, I can send an email from a client to the server which will arrive in the simon mailbox. If I turn on basic authentication on the SMTP server, I can not get the mail client (outlook 2003) to authenticate.

I have followed what is said here: http://support.microsoft.com/kb/324285

I have tried:

• the domains "testdom" and "testdom.local" in the default domain box in the SMTP authentication properties.
• Using the logon names "simon", "[email protected]" and "testdom\simon" in the logon properties on the mail client.
• I have tried specifying smtp authentication using "use same settings as my incoming server" and manually specifying the account details.

What am I doing wrong? I feel like I am missing something really obvious!

Please note: This is a test environment, I have a requirement to use SMTP basic auth, so I am not interested in using any other authentication option. I have made sure Integrated Windows and SPA auth are turned off on client and server, and I have double checked the password is right because the pop3 works to collect the mail.

I had this exact same problem and the issue turned out to be that I was trying to authenticate using the Administrator account. As soon as I tried a non-administrative user account it started working perfectly.

Possibly related information: http://www.apijunkie.com/APIJunkie/blog/post/2007/11/SMTP-535-573-Authentication-unsuccessful-error-on-Exchange-server-2003.aspx

That page no longer exists. Its content, using the Way Back Machine is copied here for reference:

If you receive this error and have exhausted all other recommended options from Microsoft and other sources on the web then you might have stumbled upon the same unknown exchange feature/bug that we suffered from.

After doing some digging around it seemed that when we installed exchange it did not set permissions properly on some of the existing users. So some users could not authenticate against the SMTP server even though it seemed like they had the exact same permissions and SMTP settings as other users that could authenticate.

To solve the problem we had to create new user accounts. New user accounts did not receive the same SMTP error.

To test if you suffer from the same problem just try to create a new domain user account and assign an exchange profile/email address to it. If this user is able to authenticate through SMTP then you found your culprit.