An odd one, you need to configure SQL Reporting Services first with the correct FROM: email address, email server and port. Once you have done that you won’t get the error message about reporting services not be configured, however you are likely then to get this error.
DPM 2010 Administrator Console->Management->Options->Notifications
Entering a valid email address and clicking “Send Test Notification” results in it saying:
Details: Logon failure: unknown user name or bad password
DPM 2010 requires ALL the fields under the SMTP Server options to be filled in regardless if your SMTP server accepts anonymous connections or not.
This is a known bug, and there’s little that can be done about the error you get in the SMTP tab of the options menu other than using a valid username and password with a mailbox on the Exchange server. However I found that if I deleted this key from the registry, I was able to send notifications successfully:
HKEY_LOCAL_MACHINE\SOFTWARE\Microsoft\Microsoft Data Protection Manager\Notification
Just delete all of “Notification” and then reopen DPM, and test, you should find it works.