SASL Authentication - lost connection after EHLO

[pstanbra]

update:
If I add my current IP to my networks and then do not use username and password for authentication, I can send an email so it looks like it's to do with the ispcp main.cf of postfix.
Any ideas?

Code:

# Postfix directory settings; These are critical for normal Postfix MTA functionallity
command_directory            = /usr/sbin
daemon_directory             = /usr/lib/postfix

# Some common configuration parameters
inet_interfaces              = all
#mynetworks_style            = host
mynetworks                   = myIP(allows me to relay without authentication), 127.0.0.0/8
myhostname                   = mail.myhostname
mydomain                     = mail.muhostname.local
myorigin                     = $myhostname

smtpd_banner                 = $myhostname ESMTP Mail Server
setgid_group                 = postdrop

# Receiving messages parameters
mydestination                = $myhostname, $mydomain
append_dot_mydomain          = no
append_at_myorigin           = yes
local_transport              = local
virtual_transport            = virtual
transport_maps               = hash:/etc/postfix/ispcp/transport
alias_maps                   = hash:/etc/aliases
alias_database               = hash:/etc/aliases

# Delivering local messages parameters
mail_spool_directory         = /var/mail

# Mailboxquota
# => 0 for unlimited
# => 104857600 for 100 MB
mailbox_size_limit           = 0
mailbox_command              = procmail -a "$EXTENSION"

# Message size limit
# => 0 for unlimited
# => 104857600 for 100 MB
message_size_limit           = 0

biff                         = no
recipient_delimiter          = +

local_destination_recipient_limit = 1
local_recipient_maps         = unix:passwd.byname $alias_database

# ispCP Autoresponder parameters
ispcp-arpl_destination_recipient_limit = 1

# Delivering virtual messages parameters
virtual_mailbox_base         = /var/mail/virtual
virtual_mailbox_limit        = 0

virtual_mailbox_domains      = hash:/etc/postfix/ispcp/domains
virtual_mailbox_maps         = hash:/etc/postfix/ispcp/mailboxes

virtual_alias_maps           = hash:/etc/postfix/ispcp/aliases

virtual_minimum_uid          = 1001
virtual_uid_maps             = static:1001
virtual_gid_maps             = static:8

# SASL paramters
smtpd_sasl_auth_enable       = yes
smtpd_sasl_security_options  = noanonymous
smtpd_sasl_local_domain      =
broken_sasl_auth_clients     = yes

smtpd_helo_required          = yes
#smtpd_sasl_authenticated_header = yes
smtpd_helo_restrictions      = permit_mynetworks,
                               permit_sasl_authenticated,
                               reject_invalid_helo_hostname,
                               reject_non_fqdn_helo_hostname

smtpd_sender_restrictions    = reject_non_fqdn_sender,
                               reject_unknown_sender_domain,
                               permit_mynetworks,
                               permit_sasl_authenticated

smtpd_recipient_restrictions = reject_non_fqdn_recipient,
                               reject_unknown_recipient_domain,
                               permit_mynetworks,
                               permit_sasl_authenticated,
                               reject_unauth_destination,
                               #check_client_access hash:/etc/postfix/rbl_override,
                               reject_unlisted_recipient,
                               check_client_access hash:/etc/postfix/policyd_whitelist,
                               check_policy_service inet:127.0.0.1:12525,
                               check_policy_service inet:127.0.0.1:10023,
                               permit

smtpd_data_restrictions      = reject_multi_recipient_bounce,
                               reject_unauth_pipelining

# TLS parameters; activate, if avaible/used
#smtpd_tls_security_level    = may
#smtpd_tls_loglevel          = 2
#smtpd_tls_cert_file         = /etc/postfix/cert.pem
#smtpd_tls_key_file          = /etc/postfix/privkey.pem
#smtpd_tls_auth_only         = no
#smtpd_tls_received_header   = yes

# AMaViS parameters; activate, if available/used
#content_filter               = amavis:[127.0.0.1]:10024

# Quota support; activate, if available/used
#virtual_create_maildirsize     = yes
#virtual_mailbox_extended       = yes
#virtual_mailbox_limit_maps     = mysql:/etc/postfix/mysql_virtual_mailbox_limit_maps.cf
#virtual_mailbox_limit_override = yes
#virtual_maildir_limit_message  = "The user you're trying to reach is over mailbox quota."
#virtual_overquota_bounce       = yes
#debug_peer_level = 2
#debug_peer_list = virginmedia.com

Remember I can email from outlook fine.
Just found also.. If I telnet to my ispcp box and try to run AUTH LOGIN and send
encoded username and password , it still says

SASL LOGIN authentication failed: authentication failure