Did you input a password or did you leave the authentication blank? Also, what version of LDMS are you using (including Service Pack level)?
By default LANDesk doesn't accept blank passwords, so if you didn't specify any credentials try adding some and let me know the results.
Actually, by default LANDesk doesn't accept not entering credentials (anonymous access). When I'm trying to do too many things at once I end up saying we don't accept blank passwords. Oops.
We have v9 installed so no SP yet . Yes we did setup authentication but still no luck. Sending emails from telnet is fine but from LANDesk you can see from the sendemail.log that there is a "SMTP Server Negotiation Failed or not set" error so looks like it may be a Exchange 2007 setting but we checked and coudn't find an issue.