Ok - it's fixed.
So, I focused in on a lot of stuff in this, but here is the proper fix.
telnet localhost 25 from the Exchange server. Do a mail test to the affected domain:
-ehlo
-mail from:
[email protected]m
-rcpt to:
[email protected] UNABLE TO RELAY
That's the focus point. I initially focused on on the
-relays
-antivirus
-reboots
-recipient policies
-etc... they are all distractions. Your core issue is that the exchange server cannot figure out where to mail stuff to on its own (how it managed to deliver mail from OL client to the external domain name is beyond me, but that is the error to go on).
So, from there, you know the metabase is corrupt. You know this because according to KB 895853 , page 4 of 8, there is a bullet point that reads DS2MB metabase key is corrupted (out of the many possibilities for SMTP error 5.7.1).
Microsoft has a tool, called ExMetabaseCheck which will run, find errors, and near the end it will let you reset both the key and SMTP. Just let it do it. That's it. Fixed.
Thanks for all of you who contributed... although really this post was more like a blog. Hope it helps in the future.