I've tried to use my Exchange 2007 server as an SMTP server for Hudson, which
requires SMTP authentication. I configured the standard authentication settings
which have been confirmed to work on Outlook, Outlook Express as well as our
office printer (which can sending scans by email). When sending a test email, or
having emails sent after a build, I get the following:

com.sun.mail.smtp.SMTPSendFailedException: 530 5.7.1 Client was not
authenticated

See attachment for full stack trace.

It would appear the problem is related to the way JavaMail is called in Hudson.
The following FAQ entry describes the problem:

http://java.sun.com/products/javamail/FAQ.html#smtpauth

I checked hudson.tasks.Mailer in core/src/main/java/hudson/tasks and it seems
indeed that JavaMail is being called using Transport.send(msg) instead of the
method suggested in the FAQ above.