On Fri, 2009-07-17 at 12:47 -0400, [email protected] wrote:
> auth default:
>   mechanisms: plain login
>   verbose: yes
>   debug: yes
>   debug_passwords: yes
>   passdb:
>     driver: passwd-file
>     args: /etc/dovecot/passwd
>   userdb:
>     driver: passwd-file
>     args: /etc/dovecot/users

OK, so you haven't configured anything except passwd-file and you
haven't configured any auth sockets either.

> > > Folks - With Dovecot 1.0.7, we're seemingly unable to
> > > authenticate users for out-going SMTP access who are
> > > not residing directly within the main system passwd/shadow
> > > files.

Which means you haven't configured your MTA to authenticate using
Dovecot!

You didn't mention what MTA you're using.. If you're using Postfix or
Exim, see http://wiki.dovecot.org/HowTo/PostfixAndDovecotSASL or
http://wiki.dovecot.org/HowTo/EximAndDovecotSASL

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