Are you using SMTP to connect to the 'localhost' server (as opposed to the mail.cust_domain.com actual mail server)? SMTP to localhost requires a webserver username & password, while SMTP to mail.cust_domain.com requires a mail account username & password.
I would suggest double-checking your SMTP settings, to make sure you're using the right username & password for the SMTP host/server you're connecting to.
If I've misunderstood, or that's not the case, feel free to write back and let me know. We'll keep digging.