I have set the SMTP on the same server as SiteFinity running.
In the Web.Config file as you have described:
I have changed the smtp server settings
<network host="localhos" defaultCredentials="true" port="25" />
When I goto the "Modules -> Newsletters", then it says:
"No active Smtp Setting detected, you need an active setting to be able to send newsletters, go to smtp setting and set one"