Initial thing I would try in your mail.config file would be to change 127.0.0.1 to localhost.
Don't ask me why that works, since localhost should resolve to 127.0.0.1 anyway.
The other thing, stop/start the web application. As far as I know (could be wrong), changes to external configuration files such as your mail.config do not automatically cause IIS to re-read them, as if you had made a change to web.config directly. A stop/start would cause it to read the new settings.
If those two things still fail.. we'll think some more. It's bound to be something simple.