Cannot send Outlook.com custom domain email using Outlook 2010

The status in the Windows Live Admin center says "Active" for my custom domain.

All the DNS settings (TXT and MX) in hostgator are correct which I verified with hostgator based on the Windows Live Admin center custom domain setup instructions.

I can login the outlook.com web interface with *** Email address is removed for privacy ***

I can receive AND send emails from *** Email address is removed for privacy *** using the outlook.com web interface.

Using the Outlook 2010 client, I can receive emails to *** Email address is removed for privacy *** 

BUT I cannot send emails since the other server rejects with the following error message:

"Sending reported error (0x800CCC0F): The connection to the server was interrupted. If this problem continues, contact your service administrator or Internet Service Provider (ISP). The server responded 550 5.7.3 Requested action aborted; user not authenticated'

I tried the SMTP setting with 

a) 587, TLS, 

b) 25, SSL

Both did not work.

Would be great if someone could help here.