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Is it possible to configure Mercury Mail Server to require authentication to send mail from a non-local address(anything but localhost or 127.0.0.1) but not require authentication to send from localhost(the php mail function for a locally hosted website, for example)?
Yes, turn on authentication for MercuryS and then in connection control setup 127.0.0.1 to allow relaying.
From the help:
If you check the Connections may relay through this server control, Mercury will use this as part of the process it applies to determine whether or not a specific connection can relay mail.
That said you may be opening up Mercury as an open relay when using 127.0.0.1.