Exchange 2003 – use a smarthost for all mail, even local domain, howto

You don't want to specify a smart-host on the SMTP virtual servers. That's what's causing your mail not to be delivered between the servers. You might think that your SMTP connector will "override" the settings on the SMTP virtual servers, but it won't.

Postini has problems taking delivery from an SMTP connector. They aren't actually doing store-and-forward-- they were acting more like a layer 7 proxy between the remote destination SMTP server and your sending SMTP server. If the remote SMTP server had rejects a recipient, for example, Postini will return an error that puts the SMTP connector into retry state, "clogging up" the SMTP connector's queue. They haven't changed this behavior, so you're going to have to go thru stupid configuration tricks to route around their brain-damage.

Edit: Here's some background on what Postini's problem was, historically. I know this was still the case in 2007, but I don't know if they've buckled down and made their service a true store-and-forward service or not: http://groups.google.com/group/microsoft.public.exchange.admin/msg/9155c2fb5a0c3238

Edit 2: Have a look at the guide here: http://www.postini.com/webdocs/outbound/en/outbound_config_en.pdf

Postini is still completely brain-damaged and stupid, apparently. They want you go through wild gyrations (and, frankly, they have you screw up how Exchange is supposed to work) to get your mail delivered to them w/o using an SMTP connector in an Exchange 2003 environment because they're STILL not just doing store-and-forward.

Basically, rather than allow you to use built-in functionality in an SMTP connector in Exchange (and allowing the Exchange routing engine to make the best judgements about how to move the mail around between servers in a multi-server environmnet) they want you to create a patchword of SMTP virtual servers with smart hosts enabled and relaying allowed-- in effect end-running the routing functionality in Exchange.

Morons.

To fix (or rather work around) this issue, configure an External DNS Server for your SMTP.

In Exchange System Manager:

Expand Servers -> [your server] -> Protocols -> SMTP

Select "Properties" for your SMTP virtual server and go to the Delivery tab. Click Advanced and then Configure. Now you are able to add external DNS servers to use for outbound mail routing.

I've used this a approach to remedy identical situations on both Exchange 2003 and 2007 with success