I found a good article at www sendmail org /tips/DontBlameSendmail.html which explains why sendmail is now fussy about driectory permissions now.

I didnt have any luck with the DontBlameSendmail option the article discusses. The other commands in the article did help me find and fix the offending directory permissions and I got sendmail working again.

The key point to understand is that when sendmail complains about a directory being world writable, you usually have to take away the write permission for group "other". Occasionally you need to take away the write permission for "group". You may also have to change the parent directory as well to keep it happy. After each change, restart the sendmail service and see what error messages you get.