Trac and sendmail? or even smtp for that matter?

I would recommended using the SMTP module. We do have sendmail enabled on our servers however it is mostly to satisfy the default PHP settings. Since trac is partly configured to use SMTP already it is easier to use it. The SMTP username/password will be the mailbox name. The server is smtp.webfaction.com. The sending e-mail address must also exist within the control panel. If you submit a support ticket we can take a look and give you more information.

The exact configuration options are listed at trac's official docs,

http://trac.edgewall.org/wiki/TracNotification#ConfigurationOptions

The following settings should be all you need to change,

# the domain name
smtp_default_domain = 'domain.com'
# The address the user will see as "From:". Must be a valid e-mail address within the control panel
smtp_from = 'you@domain.com'
# The name the user will see in the e-mail, 
smtp_from_name = 'Your Name'
# The mailbox name
smtp_user = 'myusername'
# Same as the mailbox password
smtp_password = 'mypassword'
# The reply-to address the user will see in the e-mail
smtp_replyto = 'you@domain.com'
# The smtp server
smtp_server = smtp.webfaction.com