Php mail() not working windows 2003, IIS SMTP

I'm getting this problem:

PHP Warning: mail() [function.mail]: SMTP server response: 550 5.7.1 Unable to relay for chris.mahan@gmail.com in c:\inetpub\wwwroot\mailtest.php on line 12 

from this script:

<?php
$to = "chris.mahan@gmail.com";
$subject = "test";
$body = "this is a test";

if (mail($to, $subject, $body)){
    echo "mail sent";
}
else {
    echo "problem";
}
?>

section from php.ini on the server:

[mail function]
; For Win32 only.
SMTP = server.domain.com; for Win32 only
smtp_port = 25

; For Win32 only.
sendmail_from = support@domain.com
; For Unix only.  You may supply arguments as well (default: "sendmail -t -i").
;sendmail_path =

(note that "server" and "domain" refer accurately to the actual server and domain name)

In IIS, SMTP is running. Under "Access" tab, "Relay" button, the Select which computers may relay through this virtual server is set to checkbox "only the list below" and on the list is "127.0.0.1(xxx.xxx.xxx.xxx)" (x's representing actual server IP address).

Server is running Windows Server 2003 Service Pack 2, fully patched as of 5 PM Sept 1st 2008. I assume it is running IIS7 (how to check?).

Any ideas?

In reponse to Espo: This machine is hosted at a datacenter. We do not want to use a gmail account (were doing it, want to move away from that). Windows server 2003 comes with its own SMTP server.

Update: Per Yaakov Ellis' advice, I dropped all relay restrictions and added the server IP to the allowed list (using the reverse DNS button provided) and the thing started working.

Thanks to both Espo and Yaakov for helping me out.