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Nah, they're not actually using the mail server on your domain.
They are using an open relay of some sort ... possibly an outdated send mail script, or just a normal non-secured smtp server.
old, unsecured smtp servers (they used to almost all be this way) will relay email TO and FROM just about anyone without confirming the senders identity.
Thank God they are slowly but surely getting updated / shutdown.
-P
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