IIS 6 SMTP virtual server fails with 535 Authentication failed Windows Server 2008 R2

Hi, I originally posted this in the technet Server forum, but Roger Zhang recommended I bring it over here.  I would appreciate any help.  I read through some of the other problems listed, and I don't believe this is a DNS problem since the outbound acknowledgement message 535 seems to indicate that the other server is rejecting the credentials. Funny thing is that I'm at the client today that I setup the exact same way with the same server version, same outgoing e-mail provider, etc.  The only diference I can see is that the customer who works is able to use port 25 and the customer who doesn't work isn't able to use port 25.  The customer who isn't working is using port 3535 which I've confirmed a connection with telnet up to the EHLO prompt.

I've gone through all of the suggested topics, but I still can't get this to work.  I've done this once before and it worked without a hitch.  I copied that configuration as closely as possible but I just can't get the IIS SMTP server to act as a relay agent. Specifically what I did last time:

1. Setup IIS 6 with SMTP
2. Allowed the server IP, 127.0.0.1, and the server name for connection and relay
3. Set outgoing security to basic with email@domain.com and password in the basic authentication fields
4. set port to 25 (on this system I had to use 3535, as this client has verizon who blocks port 25)
5. Confirmed that I could telnet to the the mail server on port 25/3535 and issue a ehlo command
6. Pointed the printer scan to email directly to the server's ip address and everything worked

Now, whenever I try to send a message out I get:

#Software: Microsoft Internet Information Services 7.5
#Version: 1.0
#Date: 2013-07-18 23:23:57
#Fields: date time c-ip cs-username s-sitename s-computername s-ip s-port cs-method cs-uri-stem cs-uri-query sc-status sc-win32-status sc-bytes cs-bytes time-taken cs-version cs-host cs(User-Agent) cs(Cookie) cs(Referer) 
2013-07-18 23:23:57 68.178.252.101 OutboundConnectionResponse SMTPSVC1 Axxxx-DC - 3535 - - 220+p3plsmtpa11-02.prod.phx3.secureserver.net++ESMTP 0 0 52 0 140 SMTP - - - -
2013-07-18 23:23:57 68.178.252.101 OutboundConnectionCommand SMTPSVC1 Axxxx-DC - 3535 EHLO - hxxxxxxxxxl.com 0 0 4 0 156 SMTP - - - -
2013-07-18 23:23:57 68.178.252.101 OutboundConnectionResponse SMTPSVC1 Axxxx-DC - 3535 - - 250-p3plsmtpa11-02.prod.phx3.secureserver.net+hello+[71.xx.xxx.219],+secureserver.net 0 0 85 0 296 SMTP - - - -
2013-07-18 23:23:57 68.178.252.101 OutboundConnectionCommand SMTPSVC1 Axxxx-DC - 3535 AUTH - - 0 0 4 0 296 SMTP - - - -
2013-07-18 23:23:57 68.178.252.101 OutboundConnectionResponse SMTPSVC1 Axxxx-DC - 3535 - - 334+UGFzc3dvcmQ6 0 0 16 0 452 SMTP - - - -
2013-07-18 23:23:57 68.178.252.101 OutboundConnectionResponse SMTPSVC1 Axxxx-DC - 3535 - - 535+Authentication+Failed+for+Axxxx@hxxxxxxxxxl.com 0 0 51 0 608 SMTP - - - -

And yes, I confirmed the credentials by logging in through the web interface and copying and pasting the username and password to be extra sure. Sorry to block out some of the information above, but this is client data and I don't want them to start receiving crazy mail because of me.

Any ideas what is going on?  Does auth work differently when you use a non-standard port like 3535? The only real difference is that the other client is not on verizon and I was able to use port 25 for delivery.  Both servers are 2008 R2, both outgoing addresses are secureserver.net based SMTP addresses, etc.  Any thoughts or help would be appreciated.  

Thanks,

Jeffery Smith