Ok I set mine up the same except using our ip address and mine failed as well but for a different reason. That was because of an issue with the FROM field. It must be in a valid email address format. Meaning it must be something like "CrystalReports@yourorg.com" or whatever. It does not have to be a valid email address.
Since you are getting a different error message I have to wonder if your SMTP on the Crystal Enterprise server is configured correctly or that your email system is configured to accept SMTP mail from your Crystal Enterprise server. We use MS Exchange here and I believe my CE server had to be entered in a "relay" table or somthing like that.
Take a look at the following Business Objects publication. I believe it contains a method to test SMTP on your server.
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