What baffles me here is that while both outlook (fully patched, all service packs), and thunderbird are set up to use
SMTP-AUTH, neither ever seem to make the attempt."

Both Outlook and Thunderbird are receiving "502 unimplemented (#5.5.1)" as the response to the EHLO command so they fall back to non-extended SMTP and use the HELO command. The AUTH command because it is part of the SMTP extensions so if is never issued by either client.

When you telnet from the client's LAN, what response are you getting from your EHLO command? If you are receiving an unimplemented response, then I agree with Eric that your problem is most likely the router that you mention (it shouldn't know if the command is generated by Telnet or Outlook). The configuration you give for the router also shows port 25 as being filtered - "25/tcp filtered smtp".

Have you considered upgrading your toaster so that these users could use the submission port?

Regards,
Tim



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