I have fixed the bug do to your help and googles help BTW UBUNTU ROCKS!.
This is what the documentation guides need to add:

Steps did are below but they are sequenced here,  in some point in the
guide they will need to be added. The guide is very well written but
does not take into account  some things.

(This is actually done in two steps)

Step 1:

/etc/postfix/master.cf:
    # =============================================================
    # service type  private unpriv  chroot  wakeup  maxproc command
    #               (yes)   (yes)   (yes)   (never) (100)
    # =============================================================
    smtp      inet  n       -       n       -       -       smtpd 


Step 2: 

adduser postfix sasl

=======================================
References of acknowledgments or rather sources: 

1.  http://www.postfix.org/DEBUG_README.html#no_chroot

2.
http://groups.google.com/group/linux.debian.user/browse_thread/thread/13301dce33da1437/c125d6a003c0bec7%23c125d6a003c0bec7

< RESOLVED LOCALLY>

-- 
Postifx setup documentation does not specify removing the chroot for SMTP Auth
https://bugs.launchpad.net/bugs/105378
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