Looks like RC2 breaks the smtp authentication process with sendmail due to a faulty (or unsupported) version of PEAR.php.
If I overwrite the PEAR.php file with the one from beta-1, the message appears to be sent, although the message never leaves the box. (not a fix, but a start)
Does anyone have anything better as a fix for Sendmail smtp-auth problems other than using phpmail? I am not about to open my box up to a possible mail relay problem because of some faulty php code and would rather authenticate all sends.