So I spent the day debugging this, and found out what is going on, I did this by building my own SMTP Server at home, then pointing the Camera at it, and watching what happens, so here it is ...
When you press "Test Settings" the test is done by the Client Software ... NOT the camera itself, therefore the behaviour does not have to be the same, and in fact it is not the same, the Client Software does not care if authentication is enabled, and seems to handle multiple authentication models.
The Camera software always uses Basic Authentication, this is where everything goes wrong, it does not support Anonymous, or any more sophisticated authentication model. If the Authentication model is not basic, the Camera connects to the Server, then immediately disconnects.
To make this work, I then have to use my SMTP Server as a relay, which redirects the email to my destination, which I have done, and now after all of this time, I am receiving emails with the image attached.
This is a problem with zmodo, and would need a more sophisticated EMAIL client to work ... this should not be difficult, and I am very disappointed at zmodo's lack of initiative, to fix a relatively simple problem!!