SMTP server response: 550 5.7.1 Unable to relay - *A Solution*

I just spent the last 3 hours chasing my tail trying to figure out a install problem I was having with Drupal:

Symptom
When logging into Drupal for the VERY FIRST TIME (read, fresh install), the standard e-mail fails with the following error message:

"SMTP server response: 550 5.7.1 Unable to relay.."

This causes drupal to provide a temporary password within the same screen (rather than mailing it out) - when you try to navigate away from the screen there are missing menus (specifically the entire admin tree). Anyway, to solve the problem here is what I did to enable SMTP Relaying on my test machine:

1) Go to: start > settings > control panel > Administrative Tools > Internet Information Services
2) Expand the " (local computer)" node
3) Right click on your SMTP server > go to "Properties"
4) Click "Access" tab
5) Under Relay Restrictions, click the "Relay" button
6) Click "Add"
7) Select "Single Computer" and enter IP address 127.0.0.1
8) Hit OK, OK, OK (until the properties dialog is closed)

At this point it should work, but just to be extra sure, create a php page called SMTPtest.php and drop in the following code:

----------------

<?
$to = "youremailaddress@domian.com";
$subject = "test from localhost";
$msg = "I completely understand SMTP servers now!";
$headers = "From: localhost@localhost.com\nReply-To: localhost@localhost.com";
$config = "-stfu@noob.com";
mail("$to", "$subject", "$msg", "$headers", "$config");
echo "finished!";
?>

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Once you have this file, drop it in your drupal root directory, then hit the page with a browser. If you see a "finished!" message, then check your inbox and you should have a test message sent from localhost. If you see anything resembling the relay message again, double-check your steps 1-8 (as described above) and try again.

Good luck!