SPF Policy rejection from remote email server

SBS2008.

Having problems sending email to a specific domain.  It's returning a 550 SPF Policy Framework error saying we're being rejected.  There IS an SPF Record set up, and I just verified it through a SPF look up tool: http://www.kitterman.com/spf/validate.html

Exchange is set to use the ISP's (Integra Online) SMTP as a Smart Host for all external mail delivery. Could this be part of the problem with the SPF?  There were so many odd delivery problems, using the ISP's SMTP as a Smart Host solved 95% of them..  I'd like to keep using it as a smart host if possible.

It looks like, according to the error, the Exchange server is identifying itself as the .LOCAL domain instead of it's Internet domain.. could this be the problem?  The MX record is set up properly and when i telnet into the server via the MX record DNS name, I get the proper FQDN for the external domain..

Ideas?

Error below:
Hi. This is the qmail-send program at mail.integraonline.com.
I'm afraid I wasn't able to deliver your message to the following addresses.
This is a permanent error; I've given up. Sorry it didn't work out.

Please visit http://support.integraonline.com/failure.html if you have questions about why you have received this message. Do NOT reply to this message.

Your e-mail was returned for the following reason(s):

<externaluser@portofportland.com>:
207.109.34.83 failed after I sent the message.
Remote host said: 550 The sender did not meet Sender Policy Framework rules. Please see http://spf.pobox.com

--- Below this line is a copy of the message.

Return-Path: <internaluser@worldoregon.org>
Received: (qmail 7838 invoked from network); 8 Jul 2009 18:32:58 -0000
Received: from unknown (HELO SERVER.wac.local) (internaluser.worldoregon.org@[64.62.17.244])
          (envelope-sender <internaluser@worldoregon.org>)
          by relay3.integra.net (qmail-ldap-1.03) with SMTP
          for <externaluser@portofportland.com>; 8 Jul 2009 18:32:58 -0000
Received: from SERVER.wac.local ([fe80::1168:4e84:b8f0:e3bc]) by  SERVER.wac.local ([fe80::1168:4e84:b8f0:e3bc%10]) with mapi; Wed, 8 Jul 2009
 11:32:59 -0700
From: Internal user <internaluser@worldoregon.org>
To: "External User" <externaluser@portofportland.com>
Date: Wed, 8 Jul 2009 11:32:57 -0700
Subject: RE: Test
Thread-Topic: Test
Thread-Index: Acn/+nnKCXQJMu7FQwu7agbLfpPs0AAAAf+w
Message-ID: <F68A50BCEA0DE84F8DBBD30379C2E7B31B31E8C9@SERVER.wac.local>
References: <4046D668F6818C46836C9A81F624DE8C0E03DE71@portexbe1.pop.portptld.com>
In-Reply-To: <4046D668F6818C46836C9A81F624DE8C0E03DE71@portexbe1.pop.portptld.com>
Accept-Language: en-US
Content-Language: en-US
X-MS-Has-Attach:
X-MS-TNEF-Correlator:
acceptlanguage: en-US
Content-Type: multipart/alternative;
        boundary="_000_F68A50BCEA0DE84F8DBBD30379C2E7B31B31E8C9SERVERwaclocal_"
MIME-Version: 1.0

--_000_F68A50BCEA0DE84F8DBBD30379C2E7B31B31E8C9SERVERwaclocal_
Content-Type: text/plain; charset="us-ascii"
Content-Transfer-Encoding: quoted-printable

test

From: External User [mailto:externaluser@portofportland.com]
Sent: Wednesday, July 08, 2009 11:33 AM
To: Internal User
Subject: Test