Does SMTP Auth perform authentication based on username and password or just
username?
SMTP AUTH is an actual authentication mechanism, and requires both a username and password.

Requiring just a username isn't considered authentication, and is exactly how spammers are able to take advantage of IMail's poor "Relay for local users" and "Relay for local hosts" options (because they don't need a password).

I was doing some testing and it appeared to not care if I sent an
incorrect password; it only looked at the username. Has anyone else seen
this?
That would be very bad if it is true. Have you tried sending an E-mail without using SMTP AUTH to see if it goes through (which would indicate that SMTP AUTH isn't being used at all)?

-Scott
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