SMTP Relay failure

We have implemented an mrp software package that will email out quotes and other documents. Need to setup a smtp server on the Windows 2000 server. Fails on Microsofts knowledgebase test. Have tried a tool from softstacks, that has been used at another customer location successfully, call freesmtp. It gives us a dns server error message. Tried using the info from KB293800 to make changes to IIS with no success. We know the isp is not blocking us. We have a SBS2003 Server in the domain and the Microsoft test works.
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Sounds like you can't lookup the MX records of the domains you want to send too.  Do your DNS servers forward lookups they cannot resolve to an internet server?

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