504 Need to authenticate first - Event ID 7004

[lebisol]

Hello people,
This event has been driving me crazy so perhaps someone can share their experience.
Here is the event:

This is an SMTP protocol error log for virtual server ID 1, connection #15. The remote host "192.168.1.15", responded to the SMTP command "xexch50" with "504 Need to authenticate first ". The full command sent was "XEXCH50 1840 2 ". This will probably cause the connection to fail.

For more information, click

http://www.microsoft.com/contentredirect.asp.

Mail flows just fine!

This is a fresh 2000-2k3 move without any issues (that I know of) so far.
I have gone through suggested:

http://support.microsoft.com/kb/843106

and nothing extraordinary there.
This event is logged on back end server using front end for realy(as seen in log 192.168.1.15).

==============BE SMTP config==============
[Access]
-Authentication:
Annon,Basic(no TLS),Integrated
-Relay:
Only the List Below (empty)
Allow All....(unchecked)

[Delivery]
-Outbound Sec(Annon)
-Advanced (using smarthost of FE [192.168.1.15])


==============FE SMTP Config===============
only things different from BE:
-Relay:
Only the List Below (Granted BE server IP)
Allow All....(unchecked)
-No smarthost used
==========================================

Not sure what else to look for and from what I read most people have learned to live with it...
Perhaps a second pair of eyes...
Many thanks for your time!!!!

:--------------------------------------:

All around in my home town,
They tryin' to track me down...