Currently set up in a DMZ is a server with a third party SMTP service, this service forwards mail to our exchange server on the inside. I am exploring the possibility of putting a forward facing (in the dmz) to replace the third party SMTP service. What are the good and bad of using exchange to do this, are there other apps that serve better in the DMZ? Thanks for any thoughts on this.

What version of Exchange. 2007 gives you Edge transport. With 2003 isn't best practice to put an exchange server in a DMZ due to the significant amount of ports you would need to open.What is wrong with your 3rd party solution currently?

Thanks for the follow up and sorry it took me so long.. So I have a third party app in the dmz that is intended to be used as the actual email app, the admin prior to me decided to implement exchange on the inside, he used the old app (imail) on the outside instead to forward into the exchange. The app seems to hang and have many other non documented features. Exchange seems straight forward with a large support base so thought it would be good to set up in a forward zone. I would like to not have to upgrade to 2007 on top of all other work needing to be done but will take that under advisement. If you will please share other ideas on the best way to set up to forward mail in from DMZ. Thanks again.

As Andy said, you could consider putting an Exchange 2003 front-end server in the DMZ and using that for SMTP but it's generally not recommend for the reasons Andy stated (think of a Swiss cheese firewall!). Why not look at other SMTP perimeter network systems, like SurfControl et al? That way, you can do all your message hygiene at the gateway level.

For smaller shops, Barracuda has a very decently priced SMTP Gateway that works rather well. http://www.barracudanetworks.com/ns/products/spam_overview.php