Exchange and SMTP Relay Misinformation
By default SMTP relay is disabled in Exchange 200x. This of course is a good thing because it prevents Exchange systems exposed to the Internet from being unwittingly used by spammers to “relay” their e-mail to other systems.
Often, organizations have an application that sends alerts or notifications via e-mail so they assume that they have to add an exception to allow that application to send e-mail via the SMTP service on the Exchange system. This is only partially correct: the exception only needs to be added if the e-mail is being sent to externally hosted addresses. If the mail is to be delivered only to mailboxes hosted by the organization that the Exchange server is part of, then this e-mail is for local delivery and not relayed. Thus it is not subject to the relay restrictions in the SMTP service and no exception is needed.
This makes sense, because ultimately, the internal application server is no different than an external SMTP server trying to deliver e-mail. If the address is valid and local, you would never want Exchange to reject it regardless of the source.