Yes, after further testing last night things are working fine with SMTP now, it turns our 365 indicates TLS as the required encryption method on their site but it had to be SSL in VC. I had received 77777 errors and attributed that to VC incorrectly.
And I suppose I was being lazy in wanting the ability to impersonate a user in VC for mail. Last night after discussing our needs we have decided to forgo attempting VC to send on behalf of users and continue on our path to more into WF/WCF. We have been making great progress with the api they have, it is a small step to handle email. Plus other departments need this and they don't have VC, so this gives us more traction with development efforts.
Thanks for your help and consideration of new functionality, even if it was from submitter's ignorance.