I had a smart host configured for the Exchange 2003 Default SMTP Virtual Server. This is not supported when migrating to 2010. It uses this connector for internal communication between the Exchange servers so sending to a smarthost isn’t going to work.
Removed the smarthost setting in the Default SMTP Virtual Server on EXchange 2003 server and in the same System Manager went to Routing Groups and under first routing group, created a new SMTP connector and configured it with the smart host I took out of the Default SMTP server. Address Space should be SMTP, * for domain. Local Bridgehead is the Exchange 2003 server.
This may have fixed it but the Smart Host connecter I created in the System Manager was showing up as the only Send Connecter in the Exchange Management Console (“EMC”) and it wasn’t complete. I removed it from the System Management Console which also removed it from the Exchange Management Console. Recreated it with the Exchange Management console so it no longer appeared in the System Manager. In EMC I also added another send connecter called Internal. Set the SMTP domain to send to as only the internal .local domain.
Running inbound and outbound tests from accounts on each server seem to work. Set diagnostics on Exchange for Public Folder Replication and checking the SMTP logs and no errors could be seen.