This is not actually a miss configuration of the module, but is by design. When an email arrives in your inbox, and you reply, there is no point in having the reply go to the site admin. So the messsages are sent with the "from" address of the user who sent them. Naturally.
In order for this to work, you only need a valid SMTP server that alllows either open relay (NOT recommended unless protected from the net)
Allso relay from certain IP addresses, and your website IP is enabled.
Allows relay with sucessful authentication (basic authentication normally)
If your host does not allow relay with Authentication (most unusual) then you should probably use a third party SMTP server, like gmail, hotmail, ymail, or your local ISP. All of these SMTP servers and every host company we have ever heard of will allow Authenticated SMTP relay. Some have limits like no more than 400 a day (gmail). but they alll allow it.
If could well be that power DNN allows it too, but the user name and pass being used is wrong, and this is tricking you into thinking that they only allow local delivery.
As for filtering to allow SEND FROM to only be an address hosted by Power DNN. That would be most unusual too, and is likely some Unix security guy getting all excited about what he learned at university. The realy world allows authenticated relay... just ask Microsoft or Google!