I was able to send a message through telnet on port 25, so it wasn’t a networking issue.

I turned on detailed logging in the protocols/smtp/default smtp virtual server and looked at the log message. It appeared the connections were perfect to hotmail except hotmail never ack’d receiving the message. Exchange was using the enhanced smtp protocol and attempting to send the message body as binary data; hotmail just never felt like the data was finished.

So I went to connectors/smallbusiness smtp connector and changed (on the advanced tab) Send HELO instead of EHLO to checked. (This disables the enhanced smtp protocol.)

I forced queuing and all the messages were delivered.

So my professional assessment is that sulu’s exchange was working fine with everybody but hotmail (and I expect msn) but Hotmail was broken with Exchange’s enhanced smtp protocol. Maybe there’s a hotfix or something to fix it, but it really doesn’t matter. The enhanced features don’t give you any advantage unless you’re going exchange to exchange within a company but doing it via smtp.