Not sure this will help but after much persistence I have it working.
The steps to rectify the situation are as follows;
1. I have unchecked automatically detect and maintain account settings on the account advanced tab/
2. I have checked "allow insecure authentication" on the account advanced tab.
3. I have checked "automatically detect and maintain account settings" on the advanced tab of the SMTP definition.
This had limited success and suspected the problem was associated with old keychain entries.
so I followed up with this procedure.
4a Deleted ALL SMTP definitions.
4b closed mail
4c. Went into the keychain and removed all references to smtp.livemail.co.uk
4d. Opened mail and add SMTP definitions manually. with settings.
Port 25
smtp.livemail.co.uk
Leave "automatically detect and maintain account settings" checked (SMTP only remember)
Password authentication
4e. Connect the relevant account to the newly added SMTP definition and all OK.