I just went back and looked and in your master.cf, your Postfix is still
chrooted (this is the Ubuntu/Debian default because it's more secure).
The guide doesn't tell you to change this, but you need to.  So this is
a bug in the documentation.  See
http://www.postfix.org/DEBUG_README.html#no_chroot for information on
how to turn off chroot.

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SASL authentication failure Ubuntu 6.10
https://bugs.launchpad.net/bugs/105378
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