504 5.7.4 Unrecognized authentication type - SMTP Could not authenticate, worked last week!

Issue - We have an application on a web server using phpmailer with smtp all setup, its been working for months.
We have exchange 2010 on a separate server 2008 machine

On exchange, we have a receive connector for apps to relay, with proper settings.

All of this has been working fine for months and suddenly last Friday... now we get SMTP authentication error.

I have gone into the config and tried a different UN/PW, still no dice.

Many users freaking out...

Any help is appreciated, below is a copy and paste of the phpmailer config


// Email
define("EW_EMAIL_COMPONENT", strtoupper("PHPMailer"), TRUE);
define("EW_SMTP_SERVER", "192.168.1.33", TRUE); // SMTP server
define("EW_SMTP_SERVER_PORT", 25, TRUE); // SMTP server port
define("EW_SMTP_SERVER_USERNAME", "username", TRUE); // SMTP server user name
define("EW_SMTP_SERVER_PASSWORD", "password!", TRUE); // SMTP server password
define("EW_SENDER_EMAIL", "email@mydomain.com", TRUE); // Sender email address
define("EW_RECIPIENT_EMAIL", "email@mydomain.com", TRUE); // Recipient email address
define("EW_MAX_EMAIL_RECIPIENT", 1000, TRUE);
define("EW_MAX_EMAIL_SENT_COUNT", 100000000, TRUE);
define("EW_EXPORT_EMAIL_COUNTER", EW_SESSION_STATUS . "_EmailCounter", TRUE);


** Update - Enabled SMTP Logging and get this error

2012-06-18T18:25:44.089Z,MXSRV1\Apps to Relay,08CF1B95544371D3,16,192.168.1.33:25,192.168.1.36:58420,>,250 XSHADOW,
2012-06-18T18:25:44.090Z,MXSRV1\Apps to Relay,08CF1B95544371D3,17,192.168.1.33:25,192.168.1.36:58420,<,AUTH LOGIN,
2012-06-18T18:25:44.090Z,MXSRV1\Apps to Relay,08CF1B95544371D3,18,192.168.1.33:25,192.168.1.36:58420,>,504 5.7.4 Unrecognized authentication type,


I already have a separate receive connector with anonymous setup