>How does the "HELO $domain" work...

It doesn't.  It's broken.  It will fail the HELOBOGUS test.

>I recieved a spam complaint that had a
>bogus host at my domain as the originating host in the headers (their spam
>software connected directly to my server), but the Imail log shows "HELO
>$domain".  Why would any mail server want to allow a host to say "you fill
>it in"?

Because spammers are lazy.  :)

>The spammer was also nice enough to add the following notice to the
>top of the message:
>
>NOTICE: Our mailing software inserts the email address of the recipient into
>the headers, to and from addresses of this email.  This is a new security
>technology ...

A spammer that doesn't know what the word "security" means -- surprise!

>... developed to get our mails out to you and eliminate undeliverable
>mail from dead addresses that would bounce and waste bandwidth.

... and a spammer that thinks that mail to dead addresses can get delivered 
by changing the headers around.  Wow, these guys are pretty dumb.
                                -Scott

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