Sounds like your /etc/hosts file may be incorrectly setup.
Your ISP isn't going to allow relaying from IP addresses in the RFC1918 space (ie. 192.168.x.x), so sendmail must be informing the mail relay server with the wrong IP address.
What does the /etc/hosts file look like. Follow the Sendmail troubleshooting steps , also take a look at this link for the correct configuration for /etc/hosts.
Start out with only an entry for your loopback interface, and you should be OK.