Hmm, do you have bounced message processing enabled? If you do, make sure the "bounce to address" is an address on a domain hosted on your server. If not, make sure that your Administrator Email follows the same guidelines.
Try a setting of "localhost" for your SMTP host with no additional authorization. Often, this works fine.
I am assuming that your mail server software is on the same computer/IP as your web server as this is the most common setup. If none of the above helps solve the problem, try allowing your external IP and see if that gets you anywhere.