IIS Smtp Server puts mail in Drop folder and leaves it.

This post maybe a little lenghty so here goes.
Our school uses Google Apps for e-mail services.  We have a registered domain and all goes well.
Our Alumni relations does bulk mailings to alumni and other constituents, about 1400 in all.  The relation management software works with outlook which is their client piece of choice.  A single letter is created, the development office director puts his e-mail address in the "To" field, and puts the alumni individual addresses, which have been extracted from the relation management software, in the "bbc" field. This originally would go through our old exchange server (pre-google) and out the door.  The exchange server has died and I have set up a windows 2003 server IIS smtp server on one of my Hyper-V VM's.
The smtp server is named "SMTP1" and is not part of the domain but rather just in  a "workgroup". It is configured to go out a T-1 and uses our internal DNS server for lookups.
The "default" smtp virtual server in IIS has been disabled and I created a new smtp server called "Domain Name".  I think all is configured correctly.
When he does a bulk mailing, I notice all the e-mails go to the "Drop Folder" and stay there.  If you open one of the messages, there is a "Delivery Status Notification"  stating that delivery has either failed or has been delayed (I think because of retries).
Does anyone have any idea where to start?  I have looked at some of the SMTP log files but I'm not sure what I am always reading.
Thanks for any and all help.
-SM
smantzDirector of TechnologyAsked:
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wolfman007Connect With a Mentor Commented:
SMTP places messages for users that are members of the local domain it manages in the Drop folder for delivery

If your SMTP server is putting the emails there then it probably thinks that the emails are for the local domain you have specified, however you want them sent on to a remote domain.

Are all the emails in your drop folder for the same domain?

You need to check the domains that you have setup within the SMTP Server.

SMTP Folder Structure
http://go4techsupport.wordpress.com/2008/02/16/iis-smtp-folder-structure-and-how-smtp-service-works/

SMTP Domains (IIS 6.0)
http://www.microsoft.com/technet/prodtechnol/WindowsServer2003/Library/IIS/eeeae473-8266-4e82-83a6-58bda4b65529.mspx?mfr=true
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smantzDirector of TechnologyAuthor Commented:
Additional add:
I have an Outlook profile also configured for this server and I sent an e-mail to an e-mail to one of my aol account and it was received.  Could it have anything to do with him using his domain e-mail account in the "To" field?
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