I have small LAN (10 computers) and a Linux box with IP-masquerade and
dial-on-demand as gateway to internet. I have also a Internet SMTP
relay and I use fetchmail with ETRN for downloading the mail for
users on my LAN. This Linux box also act as POP3 and SMTP server
for my internal clients (MS Outlook).
When a local user sends a mail to local user, the box is calling
I have my MASQUERADE AS domain in /etc/hosts
(In some howtos and from my previous experience this is enough
for sendmail to accept some domain name as local name)
I have sendmail running in deferred mode.
May be some problem with DNS? (I have DNS for my "internal" LAN)