I hope I'm understanding you correctly. I had issues sending stuff from my sub-domain addy (got same error message), but not from all of my normal domain name addies (7 total for domain, only 1 from sub-domain). I am capable of sending FROM within my sub-domain forum but wasn't from my email proggie on the comp when I chose to use the addy as my sending account. Strangly, it DID allow stuff sent to the account to be RECEIVED, but I couldn't SEND from my program. But, finds out, I was retarded and forgot to set something.
If using Outlook (in this case, 2002), check your Outgoing Server:
View/Change existing email accounts>Next
Double click the account that is giving you probs
More Settings>Outgoing Server
Check "My SMTP requires authenication"
Check "Log on using", and put your FTP username/pass
Check "Remember my password