Do ISPs allow this?
yes
Wouldn't this be relaying from one domain to another, similar to spamming?
no. the ISP should require SMTP AUTH (or the unacceptable "relay for addresses", after which the ISP gateway trusts the AUTH'd IP and the sender's sender domain from the IP is not restricted (some do restrict the sender domain, it's very recommended, but not so easy to do).
Len
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