Win2k3 IIS SMTP not receiving mails

Hi friends

I am facing a very painful problem with IIS SMTP Service.
I have browsed the forum and found a couple of others are also facing the same problem

My mails from external domain do not reach the drop folder.
If I send mails from my yahoo account to my domain yahoo mail bounces back with

[ip address] does not like recipient.
Remote host said: 550 <xyz@mydomain.com>... Relaying denied
Giving up on [ip address]

Can some oneplease help me?

I have set up the mx records properly..checked with dnsstuff .
I am able to send mails to external domains but not able to receive mails....In my Lan, I am able to do both..

I am using wIN 2K3 SERVER
I have not made my machine an Active Directory. is that the problem? I checked out that option but no avail.....

PLEASSSSSSSEEEEEE HELPPPPP...I AM GOING NUTS figuring out this problem why external mails dont reach my drop folder?

Regards
roarking