MailMessage and SmtpClient fails on Windows 8.1 - smtpclient

Question

I’m facing the following issue on multiple (not to say: all) Windows 8.x machines:
Running this piece of code:
var message = new MailMessage();
message.From = new MailAddress("sender#foo.bar.com");
message.To.Add(new MailAddress("recipient1#foo.bar.com"));
message.Subject = "This is my subject";
message.Body = "This is the content";
var client = new SmtpClient();
client.Send(message);
The config:
<system.net>
<mailSettings>
<smtp from="test#foo.com">
<network host="smtpserver1" port="25" userName="username" password="secret" defaultCredentials="false" />
</smtp>
</mailSettings>
</system.net>
against a hosted Exchange Server results in several issues like 5.7.1 SMTP errors (not authenticated, base64 required etc.)
Running the same code on a Windows Server 2008 R2, Windows Server 2012 or Windows 7 works as expected…
Turning of the firewall did not help.
Am I missing same magic on Windows 8.1 machines?
It doesn't matter whether the code runs in an IIS or Console Application.
Setting defaultCredentials to true or false also doesn't matter.
Sending the mail using Windows telnet client works without any problems also.
Update:
Here comes the WireShark SMTP Log:
C: EHLO <LOCALMACHINENAME>
S: 250 mail.myhostedexchange.org Hello [<IP>] | 250 SIZE 104857600 | 250 PIPELINING | 250 DSN | 250 ENHANCEDSTATUSCODES | 250 STARTTLS | 250 AUTH GSSAPI NTLM LOGIN | 250 8BITMIME | 250 BINARYMIME | 250 CHUNKING
C: AUTH gssapi <base64 encoded string>
S: 334 <base64 encoded string>
C: base64 username
S: 334 <base64 encoded string>
C: base64 password
S: 535 5.7.3 Authentication unsuccessful
Update 2:
I compared the Wireshark output from a Windows 8.1 machine and a Windows 7 machine (where everything works fine):
The Windows 7 machine sends something like this:
C: AUTH gssapi <base64encoded>NTLMSSP + some encoded chars.
The Windows 8 machine sends something like this:
C: AUTH gssapi <somehowencodedchars>Token Signing Public Key<somehowencodedchars>WELLKNOWN:PKU2U<somehowencodedchars>SMTPSVCmail.myhostedexchange.org
Update 3:
I tried using SendGrid and it works fine on Windows 8.x machines.
The difference between SendGrid and my Hosted Exchange is that SendGrid only supports
250-AUTH=PLAIN LOGIN
This is similar to my Telnet Login experience.
Update 4:
EnableSSL=true does not fix it.

Answer 1

This could be related to this bug: https://connect.microsoft.com/VisualStudio/feedback/details/785710/mailmessage-subject-incorrectly-encoded-in-utf-8-base64 but this is just with the subject header and not authentication. Keep reading!
Before I changed my answer I was pointing to the Exchange server as the problem. Encoding CSR. (but then changed my approach to the client to see what could be done there since it seemed like Weekend changes server-side would have a lower probability. But then again it just might be the right way to go after all.
I have fetched that information and brought it back:
Create a new CSR on the Exchange server and reissue the certificate
And review this post where a base64 was request to exchange but failed. So the Exchange Server had to have something modified.
http://www.billmorefield.com/index.php/2013/11/29/encoding-csr-on-exchange-2010/
I am seeing a lot of the 64 base interpretation on various different things pointing to a backwards compatibility issue on your exchange server. Windows 8 is throwing something at it and Exchange folds because of interpretation problems.
More client related but along the same lines to try to avoid bumping the 64base encrypt/decrypting problem...Here is a work around attempt from the client side which is basically rendering SSL auth useless (leaving this just to illustrate that people are attempting to approach this from the client side). See if you can set SMTPEnableSSL=N or false in your web config settings. Test and see if it works. I am thinking SSL might be the problem.
http://theoldsewingfactory.com/2011/01/06/enable-ssl-in-web-config-for-smtpclient/
Look here as well. I'll pretty up these links later.
http://social.technet.microsoft.com/Forums/en-US/023d7598-9311-4b84-b1df-81ceda011fe4/bug-smtplivecom-stopped-working-after-win-81-tested-ol2013-win8-my-lan-roaming-user?forum=w81previtpro
This is backwards compatibility issue.
This is for the .NET 4 framework. If you are using 3.5 or 3 it won't work in config.
So then you would look for your host settings somewhere and configure it there.
Reason seems to be due to the base 64 encryption not being able decrypt on your SMTP server.
Ok. To bring back my main points. It is unlikely that this is a Application coding problem considering the code works on some Windows 8 machines with SMTP and older versions of client server setups. This is more related a transport/authentication issue.
Console app
using telnet
on windows 8.1
connecting to a hosted 2010 exchange server.
Approach: Authentication/Security/Relay
Here are some better things to check.
Authentication (this is for sharepoint but it talks about your config file).
Machine Keys
Machine Keys
More Machine keys
Client Certificates
Client Certificates and Windows 8
More on Certificates
Certificate Authority
SSL
Here is discussion on routers, SSL and Windows 8.1
Here is discussion on Multiple Authoritative Domains and Windows 8