Application to replay through Exchange 2007

I have a developer who using Ruby on Rails to develop application for
our company. I'm work as Exchange admin. The developer will develop an
application (intranet) which will trigger email and relay via our
exchange 2007, so that staff able to receive email from intranet.
Currently we having problem with sending mail portion. The developer
usinf Action Mailer like below:

Address = smtp.domain.com
User_name = test@domain.com
Password = xxxx
domain = domain.com

Every time, this application try to relay email, it will show an
authentication error. The develope show the error to me. From exchange
side, I'm already trusted the application IP address to allow it relay
email.

May some body help on this, since I'm not famaliar with ruby.

Actually they try using this: