I have the same problem. And I don't understand the problem
because it works with Outlook, but it does not work with
Outlook Express. All settings are the same, also port #587.
When I send a message, I get a poopup window where I
have to enter my login data. I do so and klick OK, but
after one second, the popup window appears again.

I also own the server which should accept the mails.
It's a Debian system with Exim4. In the mainlog I read:

[..] login authenticator failed for [..] : 535 Incorrect authentication data

I have to assume there is a bug in Outlook Express because
it works with Outlook.

My system: WindowsXP (latest updates), Outlook 2000 (9.0.0.2814),
Outlook Express 6 (6.00.2900.2180).

Paul Lenz