BUMP.
So it seems when you select SMTP mailing option, it still expects the emails to be sent using JUST a valid email address, and no display name is allowed.
If there's a way (maybe in the func.mail.php) you can remove the
Your Company Name <>
from
Your Company Name <sales@yourstore.com>
(so it keeps the
sales@yourstore.com part)
Then I'm almost positive this will work. But we can't get this to work correctly (using PHP 5.3)