On the SSRS server, I was using a service account in the local domain and had setup the SMTP server based off how I had Business Objects setup. By the way, what you put in for the sender address does not seem to matter and can be what your users want to see.
After everything was setup and I tried a test subscription, I got an error message in the status: “Failure sending mail: The report server has encountered a configuration error. Mail will not be resent.”
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Without any detail in the above message, I went to the log file located on the RS server. You can find it at: C:\Program Files\Microsoft SQL Server\(RS Version).(Instance)\Reporting Services\LogFiles.
The meaningful message I got out of this was:
library!WindowsService_8!7c0!01/21/2011-15:00:03:: e ERROR: Throwing Microsoft.ReportingServices.Diagnostics.Utilities.ServerConfigurationErrorException: AuthzInitializeContextFromSid: Win32 error: 5; possible reason - service account doesn't have rights to check domain user SIDs., Microsoft.ReportingServices.Diagnostics.Utilities.ServerConfigurationErrorException: The report server has encountered a configuration error. ;
The common solution to this issue seems to be adding the service account to Windows Authorization Access Group (http://support.microsoft.com/Default.aspx?kbid=842423).