I have a slack 10 box running sendmail 8.13.2 with 2 NIC card.
eth0 - WAN Static IP
eth1 - LAN Static IP (192.168.1.1)

Everything works fine as it is.

Just by accident, the WAN UTP cable was disconnected.

I am still able to access the server by ping, ssh, pop(110) but not smtp(25).

When I do 'telnet 192.168.1.1 25' from workstations it will pause for a very long time. If I put back the WAN UTP cable, the above will work as normal. However, if 'telnet localhost 25' from the email server it will work as normal.

I have my host (/etc/hosts) file as 192.168.1.1.
All the workstations access the mail server via 192.168.1.1

Is this normal or did I missed out some settings somewhere?

sounds fine, when you unplug the WAN, I'm assuming Linux switches eth1 to eth0, which might be the cause of the odd behavior (maybe a firewall setting .. or just strange behavior made by a strange event)

possibly sendmail is set to only listen on the one card, whe it fails over to the other, it wont respond. Localhost is just a loopback so it shouldn't be indicative of anything other than the service being up and running.