I don't know - are you sure authentication took place (it should be in the logs)?

i don't think the authentication is taking place . . . . .

I there any other configuration I need to check in main.cf or master.cf ?

First, check that the client is set up to authenticate.

Can you repost "postconf -n"?

I have given in MS outlook to use the authentication and "Use same settings as the incoming mail server".

# postconf -n
alias_database = hash:/etc/postfix/aliases virtual_mailbox_lock = fcntl, dotlock mailbox_delivery_lock = fcntl, dotlock
alias_maps = hash:/etc/postfix/aliases
broken_sasl_auth_clients = yes
command_directory = /usr/sbin
config_directory = /etc/postfix
content_filter = smtp-amavis:127.0.0.1:10024
daemon_directory = /usr/libexec/postfix
data_directory = /var/lib/postfix
debug_peer_level = 2
debug_peer_list = 127.0.0.1
disable_vrfy_command = yes
html_directory = no
inet_interfaces = all
invalid_hostname_reject_code = 554
local_recipient_maps = unixasswd.byname $alias_maps
mail_owner = postfix
mail_spool_directory = /var/mail
mailbox_size_limit = 4294967296
mailq_path = /usr/bin/mailq.sendmail
manpage_directory = /usr/local/man
maximal_queue_lifetime = 2d
message_size_limit = 4294967296
mydestination = $myhostname, localhost.localdomain, $mydomain,
mydomain = MYDOMAIN.com
myhostname = MYHOST.MYDOMAIN.com
mynetworks = 192.168.0.0/24, 192.168.1.0/24, 127.0.0.0/8, ..........
newaliases_path = /usr/bin/newaliases.sendmail
non_fqdn_reject_code = 554
queue_directory = /var/spool/postfix
readme_directory = no
relay_domains =
relay_domains_reject_code = 554
sample_directory = /etc/postfix
sendmail_path = /usr/sbin/sendmail.sendmail
setgid_group = postdrop
smtpd_client_restrictions =
smtpd_data_restrictions = reject_unauth_pipelining, permit
smtpd_error_sleep_time = 0
smtpd_helo_required = yes
smtpd_helo_restrictions =
smtpd_recipient_restrictions = reject_unlisted_recipient, permit_mynetworks, permit_sasl_authenticated, reject_unauth_destination, reject_unknown_sender_domain, reject_unknown_recipient_domain, reject_rbl_client zen.spamhaus.org
smtpd_sasl_auth_enable = yes
smtpd_sasl_security_options = noanonymous
smtpd_sender_restrictions =
soft_bounce = no
strict_rfc821_envelopes = yes
unknown_client_reject_code = 554
unknown_hostname_reject_code = 554
unknown_local_recipient_reject_code = 550
unverified_sender_reject_code = 554

And saslauthd is running?

Follow this test procedure http://www.postfix.org/SASL_README.html#server_test