Hope you are testing telnet to exact smtp server which should be the same as the server mentioned in SCOT.
If that's fine then check what is the domain mentioned as DEFAULT DOMAIN. If nothing/worng is mentioned there then you will get this error.
Lastly in SICF activate the SAPConnect service if not activated already.
--By Sunil's post what he means is ask the Exchange server team if they are able to telnet to your host - where the ICM is running - your apps server.
Hope this helps.