I added $smtp_timeout=45; and it doesn't seem make any difference that I can see. The issue doesn't seem to be one of timing, it seems that any time the SMTP server gets an error trying to send one of the emails and LM gets back an error code of some sort, it just stops. So if one of the emails has a 'connection failed' or an 'unable to resolve a domain' error, LM gets an error 354 and stops instantly. This can happen with just one or two emails or 30 emails. I am using QK SMTP Server if that makes any difference.
Thanks.. Peter D